AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997
REGISTRATION NO. 333-22785
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APPLE ORTHODONTIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8021
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
74-2795193
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
------------------------
APPLE ORTHODONTIX, INC.
ONE WEST LOOP SOUTH, SUITE 100
HOUSTON, TEXAS 77027
(713) 964-6882
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
MICHAEL W. HARLAN
APPLE ORTHODONTIX, INC.
ONE WEST LOOP SOUTH, SUITE 100
HOUSTON, TEXAS 77027
(713) 964-6882
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
RICHARD S. ROTH TED W. PARIS
JACKSON & WALKER, L.L.P. BAKER & BOTTS, L.L.P.
1100 LOUISIANA 3000 ONE SHELL PLAZA
SUITE 4200 910 LOUISIANA
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. H
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. H
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. H
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. H
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(2),(3) FEE(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.001
par value.......................... -- -- $24,322,500 $7,371
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Includes shares of Common Stock issuable upon exercise of the Underwriters
over-allotment option.
(3) Estimated solely for purposes of calculating the registration fee.
(4) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED MAY 12, 1997
PROSPECTUS
2,350,000 SHARES
[LOGO -- APPLE ORTHODONTIX, INC.]
CLASS A COMMON STOCK
------------------------
All of the 2,350,000 shares of Class A Common Stock ("Common Stock")
offered hereby are being sold by Apple Orthodontix, Inc. ("Apple"). Prior to
the Offering, there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between $8.00
and $9.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Common Stock is
entitled to one vote per share while the Class B Common Stock is entitled to
three-tenths ( 3/10ths) of a vote per share. The Common Stock has been approved
for listing on the American Stock Exchange under the symbol "AOI," subject to
notice of issuance.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS(1) TO COMPANY(2)
- ----------------------------------------------------------------------------
Per Share........ $ $ $
- ----------------------------------------------------------------------------
Total(3)......... $ $ $
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $5,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 352,500 additional shares of Class A Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered severally by the Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters and subject
to conditions, including their right to reject orders, in whole or in part. It
is expected that delivery of the shares will be made at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, on or about
, 1997.
------------------------
BEAR, STEARNS & CO. INC. EQUITABLE SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
[Map showing locations
of Founding Affiliated Practices]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, OTHER STABILIZING AND SHORT-COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
CONCURRENTLY WITH THE CLOSING OF THE OFFERING, APPLE WILL ACQUIRE, IN
SEPARATE TRANSACTIONS (THE "ACQUISITIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND
INTANGIBLE ASSETS, AND ASSUME CERTAIN LIABILITIES, OF 31 ORTHODONTIC PRACTICES
(COLLECTIVELY, THE "FOUNDING AFFILIATED PRACTICES") IN EXCHANGE FOR CASH AND
SHARES OF CLASS A COMMON STOCK, PAR VALUE $.001 PER SHARE, OF APPLE ("COMMON
STOCK"). THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN EACH ACQUISITION
WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON STOCK.
ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF COMMON STOCK
ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON AN ASSUMED
INITIAL PUBLIC OFFERING PRICE OF $8.50 PER SHARE (THE MIDPOINT OF THE ESTIMATED
INITIAL PUBLIC OFFERING PRICE RANGE). UNLESS OTHERWISE INDICATED BY THE CONTEXT,
REFERENCES HEREIN TO (I) "APPLE" OR THE "COMPANY" MEAN APPLE ORTHODONTIX,
INC., (II) "AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED PRACTICES AND
ANY ORTHODONTIC PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR
RELATIONSHIPS IN THE FUTURE, (III) "NEW CASE STARTS" MEAN THE NUMBER OF NEW
PATIENTS BEGINNING TREATMENT DURING A PERIOD OF TIME AND (IV) "CASE ACCEPTANCE
RATE" MEAN, FOR ANY SPECIFIED PERIOD OF TIME, THE PERCENTAGE OF POTENTIAL
PATIENTS WHO UNDERGO AN INITIAL EXAMINATION AT AN ORTHODONTIC PRACTICE WHO IN
FACT ELECT TO BEGIN TREATMENT WITH SUCH EXAMINING ORTHODONTIST.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS (I) GIVES EFFECT TO THE ACQUISITIONS, (II) ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III) GIVES EFFECT TO A
STOCK SPLIT OF THE OUTSTANDING SHARES OF CLASS B COMMON STOCK, PAR VALUE $.001
PER SHARE ("CLASS B STOCK").
THE COMPANY
Apple was founded in July 1996 to provide practice management services to
orthodontic practices in the United States and Canada. The Company's objective
is to provide a full complement of practice management services designed to
drive internal growth by enhancing the ability of Affiliated Practices to: (i)
deliver quality, affordable orthodontic treatment primarily on a fee-for-service
basis; (ii) stimulate demand in their local markets by increasing consumer
awareness of the benefits, availability and affordability of orthodontic
treatment; and (iii) improve the productivity and profitability of their
practices. The Company will also seek to grow through the acquisition of
additional Affiliated Practices and the development of satellite offices that
complement geographic areas served by existing and future Affiliated Practices.
The Company will earn revenue by providing management, administrative,
development and other services to Affiliated Practices.
The Company has entered into definitive agreements to acquire substantially
all the tangible and intangible assets and assume certain liabilities of, and
provide long-term management services to, the Founding Affiliated Practices. The
Founding Affiliated Practices include 31 orthodontists and 58 offices located in
13 states in the United States and in Calgary, Alberta. The Founding Affiliated
Practices were selected based on a variety of factors, including the competitive
and financial strengths and historical growth of their practices and the
potential for future growth in their markets. Apple also considered the local
and national reputations of the Founding Affiliated Practices within the
orthodontic services industry, their ability to manage multi-location practices
providing high levels of quality care and their desire to grow and improve the
operating efficiency of their respective practices. For the year ended December
31, 1996, the Founding Affiliated Practices had median patient revenues per
practice of approximately $700,000 and average (mean) patient revenues per
practice of approximately $800,000.
The orthodontic services industry is highly fragmented, with over 90% of
the approximately 9,000 orthodontists in the United States operating as sole
practitioners and less than 2% being affiliated with the only existing public
practice management company specializing in orthodontics. The industry currently
generates approximately $3.5 billion in annual gross revenues, which have grown
steadily at an average rate
3
<PAGE>
of 7.5% per year in recent years. Industry data and management's experience
indicate that the need for orthodontics significantly exceeds the current
demand.
The Company's business strategy emphasizes (i) implementing a comprehensive
operating strategy designed to drive internal growth of the Affiliated Practices
and (ii) expanding the Company's network of Affiliated Practices through an
aggressive acquisition program.
The primary elements of the Company's operating strategy are (i)
implementing practice-building and external marketing programs designed to
generate new patient starts through increased referrals from existing and former
patients and the use of multimedia advertising to stimulate demand for treatment
services, (ii) offering more affordable payment plans to patients to broaden the
market for orthodontic services, (iii) increasing the operating efficiency of
the Affiliated Practices by relieving the orthodontists from various
time-consuming administrative responsibilities and realizing economies of scale,
(iv) providing a systems-oriented approach to training and education of clinic
personnel to improve their communications with patients and potential patients
and increase their productivity, (v) developing satellite offices to expand the
geographic markets served by Affiliated Practices and (vi) utilizing customized
management information systems to provide detailed financial and operating data
and related analysis to Affiliated Practices and management. Each of these
elements is intended to drive the internal growth of the Affiliated Practices
while allowing them to maintain high levels of quality care.
The Company has implemented its operating strategy at a prototype practice
owned and, until June 1996, operated by the Company's Chairman and CEO, John G.
Vondrak, D.D.S. This practice has grown substantially since 1989, when Dr.
Vondrak acquired it, to approximately $1.9 million of revenues in 1996, which
management believes places it among the largest sole-practitioner orthodontic
practices in the United States. Among the factors contributing to this growth
have been the Company's practice-building program (consisting of a complete
training and operating program designed to maximize patient satisfaction levels,
generate referrals from existing and former patients and increase case
acceptance rates) and external marketing efforts, including television
advertising focusing on affordable payment programs offered by that practice.
This prototype practice had a case acceptance rate of approximately 71% in 1996.
Management believes that the results of this practice demonstrate the
effectiveness of the Company's operating strategy. In July 1996, Dr. Vondrak
delegated the operating responsibilities of this practice to a newly hired
orthodontist who recently completed her education, so that he could devote his
time fully to the formation of the Company. Since this transfer, the continued
application of the Company's operating strategy has resulted in a comparable
number of case starts based on a comparison of the six-month period ended
December 31, 1996 to the corresponding period in the prior year.
The Company also intends to pursue an aggressive expansion program designed
to strengthen its position in its current markets and expand its network of
Affiliated Practices into markets it does not currently serve. The Company
believes that, due to the highly fragmented nature of the industry, there are
numerous orthodontic practices that are attractive candidates to become
Affiliated Practices. Additionally, the Company plans to focus on candidates who
have strong reputations in their local markets and the desire to implement the
Company's operating strategy. The Company intends to leverage the reputations
and relationships of the orthodontists affiliated with the Founding Affiliated
Practices to identify and develop growth opportunities with candidates to become
future Affiliated Practices. Many of these orthodontists hold, or have
previously held, leadership roles in various state, regional and national
associations or are affiliated with or teach at graduate orthodontic programs at
dental schools. The Company believes the visibility and reputation of these
individuals, combined with the acquisition experience of management, will
provide the Company with certain advantages in identifying, negotiating and
consummating future acquisitions.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the
Company............................ 2,350,000 shares
Common Stock to be outstanding after
the Offering....................... 5,375,634 shares(1)
Class B Stock to be outstanding after
the Offering....................... 4,106,852 shares
Voting Rights........................ Holders of Common Stock are entitled to one vote per share
and the holders of Class B Stock are entitled to
three-tenths ( 3/10ths) of a vote per share. In addition,
holders of the Class B Stock are entitled currently to
elect as a class one member of the Board of Directors and
the holders of the Common Stock are entitled to elect as a
class all other members of the Board of Directors. The
Common Stock and Class B Stock possess ordinary voting
rights and vote together as a single class in respect of
other corporate matters. See "Description of Capital
Stock."
Conversion of the Class B Stock...... Each share of Class B Stock will automatically convert to
Common Stock on a share-for-share basis (i) in the event of
a disposition of such share of Class B Stock by the holder
thereof (excluding dispositions to such holder's
affiliates), (ii) in the event any person not affiliated
with Apple acquires beneficial ownership of 15% or more of
the outstanding shares of capital stock of the Company,
(iii) in the event any person not affiliated with Apple
offers to acquire 15% or more of the outstanding shares of
capital stock of the Company, (iv) in the event the holder
of such share elects to so convert at any time after the
second anniversary of the date of this Prospectus, (v) on
the fifth anniversary of the date of this Prospectus or
(vi) in the event the holders of a majority of the
outstanding shares of Common Stock approve such conversion.
In addition, the Company may elect to convert any
outstanding shares of Class B Stock into shares of Common
Stock in the event 80% or more of the outstanding shares of
Class B Stock as of the date of this Prospectus have
previously been converted into shares of Common Stock.
Use of proceeds...................... To fund the cash portion of the purchase price for the
assets of the Founding Affiliated Practices, to repay
indebtedness and for general corporate purposes, which are
expected to include future acquisitions, the development of
satellite offices and future capital expenditures. See
"Use of Proceeds."
Proposed American Stock Exchange
symbol............................... AOI
</TABLE>
- ------------
(1) Includes 3,025,634 shares of Common Stock to be issued in connection with
the Acquisitions and excludes (i) an aggregate of 236,363 shares of Common
Stock issuable on conversion of $2.6 million in aggregate principal amount
of convertible promissory notes (the "Convertible Notes") issued by Apple
to TriCap Funding I, L.L.C. ("TriCap") in connection with Apple's
organizational financing, which Convertible Notes are convertible into
shares of Common Stock at a conversion price equal to $11.00 per share, (ii)
an aggregate of approximately 760,000 shares of Common Stock issuable upon
exercise of stock options outstanding at a weighted average exercise price
of $8.36 per share under Apple's 1996 Stock Option Plan (the "1996 Stock
Option Plan"), (iii) approximately 240,000 shares reserved for
5
<PAGE>
future issuance under the 1996 Stock Option Plan and (iv) approximately
324,280 shares of Common Stock issuable upon the exercise of a warrant
issued to an affiliate of TriCap, with an exercise price per share equal to
the price to public per share set forth on the cover page of this
Prospectus, which warrant provides that the number of underlying shares will
be determined based upon the initial public offering price per share. The
number of shares to be outstanding on completion of the Offering will
decrease if the initial public offering price is higher, and will increase
if the initial public offering price is lower, than $8.50 per share. For
example, an aggregate of 5,207,543 shares of Common Stock would be
outstanding if that price is $9.00 while an aggregate of 5,564,734 shares of
Common Stock would be outstanding if that price is $8.00. See
"Management -- 1996 Stock Option Plan."
EXCEPT WHERE OTHERWISE SPECIFIED, INDUSTRY INFORMATION USED IN THIS
PROSPECTUS IS DERIVED FROM THE 1995 JOURNAL OF CLINICAL ORTHODONTISTS
ORTHODONTIC PRACTICE STUDY ("1995 JCO STUDY"), A BIENNIAL STUDY, AND RELATES
TO 1994 UNLESS OTHERWISE INDICATED. COMPARABLE INFORMATION FOR 1995 AND 1996 IS
NOT EXPECTED TO BE AVAILABLE UNTIL THE RELEASE OF THE 1997 JCO STUDY IN LATE
1997. THE INFORMATION COMPILED IN THE 1995 JCO STUDY RELATES TO ORTHODONTISTS
WHO HAVE COMPLETED ACCREDITED GRADUATE ORTHODONTIC TRAINING PROGRAMS AND NEITHER
THAT INFORMATION NOR ANY OTHER INDUSTRY INFORMATION SET FORTH IN THIS PROSPECTUS
INCLUDES GENERAL DENTISTS WHO ALSO PERFORM ORTHODONTIC SERVICES.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)
The following information is derived from the audited financial statements
of Apple included elsewhere in this Prospectus. Except as otherwise indicated,
this information does not reflect the effects of the Acquisitions or the
Offering. For certain information concerning the Founding Affiliated Practices,
see Note 6 of Notes to Financial Statements.
YEAR ENDED
DECEMBER 31, 1996
-----------------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ --
Costs and expenses:
Salaries, wages and benefits.... 627
Rent............................ 20
Depreciation and amortization... 5
General and administrative
expenses....................... 232
--------
Total costs and expenses........ 884
--------
Income (loss) before income taxes.... (884)
Provision for income taxes........... --
--------
Net income (loss).................... $ (884)
========
DECEMBER 31, 1996
-------------------------------
HISTORICAL AS ADJUSTED(1)
------------- --------------
BALANCE SHEET DATA:
Working capital...................... $(2,324) $ 5,651
Total assets......................... 1,461 10,912
Long-term debt and capital lease
obligations, net of current
portion............................ -- 412
Stockholders' equity................. (884) 7,802
- ------------
(1) As adjusted to give effect to the Acquisitions and the Offering.
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER FROM THOSE DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY
The Company was incorporated in July 1996 and has conducted no operations
to date other than in connection with the Offering and the Acquisitions. The
Company has entered into agreements to acquire substantially all the assets and
assume certain liabilities of the Founding Affiliated Practices concurrently
with the closing of the Offering. In connection with the consummation of the
Acquisitions, the Company is entering into agreements to provide management
services ("Service Agreements") to the Founding Affiliated Practices for
initial terms of 20 years (subject to early termination by either party for
"cause," which includes a material default by or bankruptcy of the other
party). The Founding Affiliated Practices have operated as separate independent
entities. There can be no assurance that the process of integrating the
management and administrative functions of the Founding Affiliated Practices
will be successful or that the recently assembled management group will be able
to manage effectively or profitably these operations and successfully implement
the Company's operating or expansion strategies. Failure by the Company to
successfully implement its operating and expansion strategies would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Business Strategy" and "-- Service
Agreements."
RELIANCE ON AFFILIATED PRACTICES AND ORTHODONTISTS
The Company will receive fees for management services provided to the
Affiliated Practices under the Service Agreements. It will not employ
orthodontists or control the practice of orthodontics by the orthodontists
employed by the Affiliated Practices, and its management services revenue
generally will depend on revenue generated by the Affiliated Practices. In some
cases, the management fees will be based on the costs and expenses the Company
incurs in connection with providing management services. The profitability of
the Affiliated Practices, as well as the performance of the individual
orthodontists employed by the Affiliated Practices, will affect the Company's
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview" and "Business -- Service Agreements."
The revenue of the Affiliated Practices (and, therefore, the success of the
Company) is dependent on fees generated by the orthodontists employed by the
Affiliated Practices. In connection with the Service Agreements, each
orthodontist affiliated with a Founding Affiliated Practice will enter into an
employment agreement, substantially all of which will have a five-year term,
with the professional corporation or association in which that orthodontist owns
an equity interest (and which is a party to a Service Agreement). A substantial
reduction in the number of orthodontists employed by or associated with the
Affiliated Practices could have a material adverse effect on the financial
performance of the Company. The ability of the Affiliated Practices to replace
existing orthodontists by attracting new orthodontists may be constrained by the
limited number of new orthodontists completing post-graduate orthodontic
programs each year. Failure by the Affiliated Practices to employ a sufficient
number of orthodontists (whether by renewals of existing employment agreements
or otherwise) would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Industry" and
"-- Orthodontist Employment Agreements."
RISKS ASSOCIATED WITH EXPANSION STRATEGY
The success of the Company's expansion strategy will depend on a number of
factors, including the Company's ability to (i) identify attractive and willing
candidates to become Affiliated Practices, (ii) affiliate with acceptable
Affiliated Practices on favorable terms, (iii) adapt the Company's structure to
8
<PAGE>
comply with present or future legal requirements affecting the Company's
arrangements with Affiliated Practices and comply with regulatory and licensing
requirements applicable to orthodontists and facilities operated and services
offered by orthodontists, (iv) obtain suitable financing to facilitate its
expansion program and (v) expand the Company's infrastructure and management to
accommodate expansion. Identifying candidates to become Affiliated Practices and
proposing, negotiating and implementing economically feasible affiliations with
such groups can be a lengthy, complex and costly process. A shortage of
available orthodontists with the skills and experience sought by the Company
would have a material adverse effect on the Company's expansion opportunities.
Furthermore, the Company anticipates facing substantial competition from other
companies to establish affiliations with additional orthodontic practices. There
can be no assurance that the Company's expansion strategy will be successful,
that modifications to the Company's strategy will not be required, that the
Company will be able to effectively manage and enhance the profitability of
additional Affiliated Practices or that the Company will be able to obtain
adequate financing on reasonable terms to support its expansion program.
Furthermore, using shares of Common Stock as consideration for (or in order to
provide financing for) future acquisitions could result in significant dilution
to then-existing stockholders. In addition, future acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations. See
" -- Competition," " -- Substantial Dilution and Absence of Dividends,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Business Strategy."
NEED FOR ADDITIONAL FINANCING
The Company's expansion strategy will require substantial capital
resources. Capital is needed not only for the acquisition of the assets of
additional Affiliated Practices, but also for the effective integration,
operation and expansion of the Affiliated Practices. In addition, the Affiliated
Practices may from time to time require capital for renovation and expansion and
for the addition of equipment and technology. The Service Agreements provide for
advances by the Company to the Founding Affiliated Practices for working capital
requirements (including any deficits in cash flows of Founding Affiliated
Practices resulting from, among other things, development of satellite offices)
and other purposes. Such loans will generally bear interest at prime plus one
percent and will be repayable over varying periods of time not to exceed five
years. The proceeds from the Offering will not be sufficient to fund the
Company's planned acquisition program. The extent to which the Company will be
able or willing to use shares of Common Stock to consummate acquisitions or
provide future financing will depend on its market value from time to time and,
in the case of acquisitions, the willingness of owners of potential Affiliated
Practices to accept Common Stock as full or partial payment of acquisition
consideration. Using shares of Common Stock for these purposes may result in
significant dilution to then-existing stockholders. The Company will require
additional capital from outside financing sources in order to continue its
expansion program. Although the Company currently believes it will be able to
secure additional financing, there can be no assurance that the Company will be
able to obtain additional funds when needed on satisfactory terms or at all. Any
limitation on the Company's ability to obtain additional financing could have a
material adverse effect on the Company's business, financial condition and
results of operations. See " -- Substantial Dilution and Absence of Dividends"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
In connection with the closing of the Acquisitions, the Company will pay,
out of proceeds from the Offering, approximately $6.4 million in cash to the
owners of the Founding Affiliated Practices, including approximately $455,000 to
Dr. Vondrak for the acquisition of his practice. The Company will also use (i)
approximately $3.0 million of the proceeds from the Offering to repay the entire
principal and interest amounts outstanding under the Convertible Notes, all of
which are held by TriCap, and to reimburse the expenses incurred by TriCap on
behalf of the Company in connection with the Offering and (ii) approximately
$500,000 of such proceeds to pay a financial advisory fee to TriCap Partners,
L.L.C. ("TriCap Partners"), an affiliate of TriCap, pursuant to a consulting
agreement between Apple and TriCap
9
<PAGE>
Partners. The Company has used $230,000 of the funds advanced to it by TriCap to
reimburse John G. Vondrak Apple Orthodontix, Inc., one of the Founding
Affiliated Practices ("JGVAOI"), for a portion of the organizational expenses
of Apple incurred by JGVAOI. The Company intends to reimburse JGVAOI an
additional $70,000 from the proceeds of the Offering to repay the remainder of
such expenses. See "Use of Proceeds" and "Certain Transactions"
GOVERNMENT REGULATION
Various federal and state laws regulate the orthodontic services industry.
Regulatory oversight includes, but is not limited to, considerations of
fee-splitting and corporate practice of orthodontics.
The laws of many states prohibit business corporations such as the Company
from engaging in the practice of orthodontics or employing orthodontists to
practice orthodontics and prohibit orthodontists from splitting fees with
non-orthodontists. The specific restrictions against the corporate practice of
orthodontics, as well as the interpretation of those restrictions by state
regulatory authorities, vary from state to state. The restrictions are generally
designed to prohibit a non-orthodontic entity (such as the Company) from
controlling the professional assets of an orthodontic practice (such as patient
records and payor contracts), employing orthodontists to practice orthodontics
(or, in certain states, employing dental hygienists or orthodontic assistants),
or controlling the content of an orthodontist's advertising or professional
practice. Pursuant to the agreements entered into in connection with the
Acquisitions, Apple will neither acquire any professional assets nor employ any
orthodontists who will provide orthodontic services at any of the Founding
Affiliated Practices' locations. The laws of many states also prohibit
orthodontists from sharing professional fees with non-orthodontic entities.
State orthodontic boards do not generally interpret these prohibitions as
preventing a non-orthodontic entity from owning non-professional assets used by
an orthodontist in an orthodontic practice or providing management services to
an orthodontist for a fee provided certain conditions are met. There can be no
assurance that a review of the Company's business relationships by courts or
regulatory authorities will not result in determinations that could prohibit or
otherwise adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of orthodontics and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.
EXTENT OF PROTECTION OF PROPRIETARY RIGHTS
Apple relies in part on trademark, service mark, trade dress, trade secret,
unfair competition and copyright laws to protect its intellectual property
rights. There can be no assurance that the actions that have been taken by the
Company will be adequate to protect its intellectual property rights from
misappropriation by others, that the Company's proprietary information will not
become known to competitors, that others will not independently develop
substantially equivalent or better intellectual properties that do not infringe
on the Company's intellectual property rights or that others will not assert
rights in, and ownership of, proprietary rights of the Company. Furthermore, the
Company's rights to its "APPLE ORTHODONTIX" common law service mark may be
limited in market areas where a similar trademark or service mark may already be
in use. The Company has not applied for or obtained any registrations of its
trademarks or service marks. The Company is aware of several other businesses
that utilize an "APPLE" service mark in connection with the provision of
general dental services, some of which have obtained federal or state trademark
registrations. The Company is aware of only one other orthodontic practice in
the United States that utilizes a service mark similar to the Company's, and
that practice is not located in a market where any of the Founding Affiliated
Practices' offices are located.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST
Following the completion of the Acquisitions and the Offering (and assuming
the Convertible Notes will be repaid in full with proceeds from the Offering and
will not be converted into shares of Common
10
<PAGE>
Stock), Dr. John G. Vondrak, the Company's Chairman and Chief Executive Officer,
the other executive officers and directors of the Company as a group, and TriCap
will beneficially own approximately 38.6%, 11.3% and 41.0%, respectively, of the
outstanding shares of Class B Stock (or an aggregate of approximately 91.0%) and
4.6%, 7.9% and none, respectively, of the outstanding shares of Common Stock (or
an aggregate of approximately 12.1%). These persons, if acting in concert, will
be able to exercise significant influence over the Company's affairs, elect the
entire Board of Directors and (subject to Section 203 of the Delaware General
Corporation Law ("DGCL")) control the outcome of any matter submitted to a
vote of stockholders. See "Security Ownership of Certain Beneficial Owners and
Management." The Company's Chairman of the Board and Chief Executive Officer,
John G. Vondrak, D.D.S., is the sole shareholder of JGVAOI and will be a party
to a Service Agreement with the Company. In connection with the provision of
management services by the Company to the Affiliated Practice owned by Dr.
Vondrak, there are potential conflicts of interest that may arise from time to
time in connection with negotiating terms of working capital loans from the
Company to that practice, if any, and certain other arrangements under the
Service Agreement.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part on the
continued service of its senior management, including John G. Vondrak, D.D.S.
and other key personnel, including LeeAnn Peniche. There can be no assurance
that Dr. Vondrak, the Company's senior management and other key employees will
continue to work for the Company. Loss of services of those employees could have
a material adverse effect on the Company's business, results of operations and
financial condition. The success of the Company's growth strategy will also
depend on the Company's ability to attract and retain additional high quality
personnel. See "Business -- Employees" and "Management."
COMPETITION
The Company anticipates facing substantial competition from other companies
to establish affiliations with additional orthodontic practices. The Company is
aware of one public and two private practice management companies focused on
orthodontics and several companies pursuing similar strategies in other segments
of the health care industry (including dentistry). Certain of these competitors
have greater financial and other resources than the Company (including more
established trading histories for their shares of common stock, which may be
used as currency in making acquisitions). Additional companies with similar
objectives may enter the Company's markets and compete with the Company. In
addition, the business of providing orthodontic services is highly competitive
in each market in which the Company will operate. Each of the Founding
Affiliated Practices faces local competition from other orthodontists, general
dentists and pedodontists (dentists specializing in the care of children's
teeth), some of whom have more established practices. Dentists are not
restricted by law or any governmental authority from providing orthodontic
services. Management believes the increase in recent years in dentists providing
orthodontic services has limited the growth of patient case starts performed by
orthodontists. There can be no assurance that the Company or the Affiliated
Practices will be able to compete effectively with their respective competitors,
that additional competitors will not enter their markets or that additional
competition will not have a material adverse effect on the Company. See
"Business -- Competition."
RISK OF PROVIDING ORTHODONTIC SERVICES; ADEQUACY OF INSURANCE COVERAGE
The Affiliated Practices provide orthodontic services to the public and are
exposed to the risks of professional liability and other claims. Such claims, if
successful, could result in substantial damage awards to the claimants that may
exceed the limits of any applicable insurance coverage. Although the Company
will not control the practice of orthodontics by the Affiliated Practices, it
could be asserted that the Company should be held liable for malpractice of an
orthodontist employed by an Affiliated Practice. Each Affiliated Practice has
undertaken to comply with all applicable regulations and legal requirements, and
the Company maintains liability insurance for itself and it is anticipated that
the Company will be named as an additional insured party on the liability
insurance policies of the Affiliated Practices. The Founding Affiliated
Practices have agreed to maintain comprehensive professional liability
insurance, generally with
11
<PAGE>
limits of not less than $1.0 million per claim and with aggregate policy limits
of not less than $3.0 million per orthodontist and, in the event a Founding
Affiliated Practice employs more than one orthodontist, that Founding Affiliated
Practices will maintain such insurance with a separate limit for claims against
that Founding Affiliated Practice in an amount acceptable to Apple. There can be
no assurance, however, that a future claim or claims will not be successful or,
if successful, will not exceed the limits of available insurance coverage or
that such coverage will continue to be available at acceptable costs. See
"Business -- Litigation and Insurance."
LITIGATION WITH ORTHODONTIC CENTERS OF AMERICA
On December 10, 1996, Orthodontic Centers of America, Inc. ("OCA") filed
a complaint in the United States District Court for the Eastern District of
Louisiana against Apple, Dr. Vondrak, John G. Vondrak, P.C. and JGVAOI alleging,
among other things, misappropriation of trade secrets and certain breaches of a
confidentiality agreement executed by Dr. Vondrak, on behalf of John Vondrak,
P.C., in favor of OCA. While Apple is not a party to the confidentiality
agreement, OCA has alleged that Apple should be bound by its terms as a result
of the relationship between Dr. Vondrak and Apple (specifically, OCA has alleged
that Dr. Vondrak and Apple are alter egos and, alternatively, that Dr. Vondrak
was acting as Apple's agent when he executed the confidentiality agreement). The
Company intends to vigorously defend against the claims made by OCA, which,
based on the advice of legal counsel, the Company believes are without merit.
See "Business -- Litigation and Insurance."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company.
Concurrently with the closing of the Offering, security holders of the
Founding Affiliated Practices will receive, in the aggregate, 3,025,634 shares
of Common Stock as a portion of the consideration for the assets of their
practices. Certain other stockholders of the Company will hold, in the
aggregate, an additional 4,106,852 shares of Class B Stock. Those shares are not
being offered and sold pursuant to this Prospectus. None of those 7,132,486
shares were acquired in the transactions registered under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, such shares may not
be sold except in transactions registered under the Securities Act or pursuant
to an exemption from registration. In addition, the holders of 3,025,634 of
those shares have agreed not to sell any shares of Common Stock owned by them
immediately after the consummation of the Acquisitions for a one-year period
following the Offering, subject to their right to exercise certain registration
rights. After the expiration of such restricted period, all of those shares may
be sold in accordance with Rule 144 under the Securities Act, subject to the
applicable volume limitations, holding period and other requirements of Rule
144. Substantially all of the outstanding shares of Class B Stock will become
eligible for resale pursuant to Rule 144 in October 1997, although such shares
will remain subject to a contractual resale restriction during the 180-day
period described in the following paragraph.
The Company, its directors and executive officers, TriCap and all persons
acquiring shares of Common Stock in connection with the Acquisitions have agreed
not to offer or sell any shares of Common Stock for a period of 180 days (the
"180-Day Lockup Period") following the date of this Prospectus without the
prior written consent of Bear, Stearns & Co. Inc., except that the Company may
issue, subject to certain conditions, Common Stock in connection with
acquisitions and awards under the 1996 Stock Option Plan.
Following completion of the Offering, the Company intends to register the
issuance of an additional 2,000,000 shares of its Common Stock under the
Securities Act subsequent to completion of the Offering for use by the Company
as all or a portion of the consideration to be paid in future acquisitions.
Those shares will generally be freely tradable by nonaffiliates after their
issuance, unless the sale thereof is contractually restricted. The Company
anticipates that the agreements entered into in connection with its future
acquisitions will contractually restrict the resale of all or a portion of the
shares issued in those transactions for varying periods of time.
12
<PAGE>
The Company anticipates that, prior to the consummation of the Offering,
the Company will have outstanding under the 1996 Stock Option Plan options to
purchase approximately 760,000 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the 1996
Stock Option Plan. See "Management -- 1996 Stock Option Plan" and "Shares
Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock, which will be determined
through negotiations between the Company and the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
The factors considered in making such determination will include the prevailing
market conditions, the financial condition and operating history of the Company
and the Affiliated Practices, their prospects and the prospects for the
orthodontic services industry in general, the management of the Company and the
market price of securities for companies in businesses similar to that of the
Company. The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. These fluctuations often substantially affect the
market price of a company's common stock. The market prices for securities of
physician practice management companies have in the past been, and can in the
future be expected to be, particularly volatile. The market price of the Common
Stock may be subject to volatility from quarter to quarter depending on
announcements regarding the Affiliated Practices and their ability to open new
satellite offices, acquisitions by the Company or its competitors, government
relations, developments or disputes concerning proprietary rights, changes in
reimbursement levels, changes in health care policy in the United States and
internationally, the issuance of stock market analyst reports and
recommendations, and economic and other external factors, as well as operating
results of the Company and fluctuations in the Company's financial results. See
"-- Fluctuations in Operating Results" and "Underwriting."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year. Results may fluctuate due to a number of
factors, including the timing of future acquisitions and satellite office
openings, seasonal fluctuations in the demand for orthodontic services and
competitive factors. Accordingly, quarterly comparisons of the Company's
revenues and operating results should not be relied on as an indication of
future performance, and the results of any quarterly period may not be
indicative of results to be expected for a full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Bylaws and of Delaware law could,
together or separately, discourage potential acquisition proposals, delay or
prevent a change in control of the Company or limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
The Certificate of Incorporation provides for "blank check" preferred stock,
which may be issued without stockholder approval, provides for a "staggered"
Board of Directors and provides that stockholders may act only at an annual or
special meeting of stockholders and may not act by written consent. In addition,
certain provisions of the Company's Bylaws restrict the right of the
stockholders to call a special meeting of stockholders, to nominate directors,
to submit proposals to be considered at stockholders' meetings and to adopt
amendments to the Bylaws. The Company also is subject to Section 203 of the
DGCL, which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business acquisitions with an
"interested stockholder" for a period of three years following the date such
stockholder became an interested stockholder. See "Description of Capital
Stock."
13
<PAGE>
SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares in the amount of $7.72 per share. See "Dilution." In the event the
Company issues additional Common Stock in the future, including shares that may
be issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value per
share of Common Stock. The Company has never paid any cash dividends and does
not anticipate paying cash dividends on its Common Stock or Class B Stock in the
foreseeable future. See "Dividend Policy."
14
<PAGE>
THE COMPANY
The Company was incorporated in July 1996 and has conducted no operations
to date other than in connection with the Offering and the Acquisitions. The
Company has entered into agreements to acquire substantially all the assets and
assume certain liabilities of the Founding Affiliated Practices concurrently
with the closing of the Offering. The Company's principal executive offices are
located at One West Loop South, Suite 100, Houston, Texas 77027, and its
telephone number is (713) 964-6882.
USE OF PROCEEDS
The gross proceeds from the sale of the shares of Common Stock offered
hereby are estimated to be approximately $20.0 million (approximately $23.0
million if the Underwriters' over-allotment option is exercised in full). The
net proceeds to the Company from the sale of the shares of Common Stock offered
hereby (after deducting the underwriting discounts and commissions and estimated
Offering expenses (excluding the repayment of the entire principal and interest
amounts outstanding under the Convertible Notes issued to TriCap and the
expenses incurred by TriCap on behalf of the Company in connection with the
Acquisitions and the Offering)) are estimated to be approximately $16.1 million
(approximately $18.9 million if the Underwriters' over-allotment option is
exercised in full).
Of the $16.1 million of net proceeds, the Company intends to use (i)
approximately $6.4 million to pay the cash portion of the consideration for the
Acquisitions, (ii) approximately $2.6 million to repay TriCap amounts
outstanding under the Convertible Notes and approximately $400,000 to reimburse
TriCap for expenses incurred by TriCap on behalf of Apple, and (iii) $500,000 to
pay a financial advisory fee to an affiliate of TriCap. The remaining net
proceeds will be used for general corporate purposes, which are expected to
include future acquisitions, the development of satellite offices and future
capital expenditures. Other than with respect to the Acquisitions, the Company
currently has no agreement or understanding with respect to any future
acquisitions. Pending such uses, the net proceeds will be invested in
short-term, interest bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
The Convertible Notes were issued in connection with loans made by TriCap
in the aggregate amount of $2.6 million to fund Apple's organizational and other
expenses incurred prior to the completion of the Offering. The Convertible Notes
bear interest at an average rate of 8.5% per annum and are convertible, at the
option of either Apple or TriCap, into shares of Common Stock at a conversion
price of $11.00 per share. Apple does not currently intend to exercise its
conversion rights with respect to the Convertible Notes and, based on a written
representation received from TriCap, does not expect TriCap to exercise its
conversion rights. Assuming the Convertible Notes are not converted, the
indebtedness represented thereby will mature and become due on the closing of
the Offering.
DIVIDEND POLICY
It is the Company's current intention to retain earnings for the
foreseeable future to support operations and finance expansion. The payment of
any future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, cash flow from operations, capital requirements, expansion
plans, the income tax laws then in effect, the requirements of Delaware law and
restrictions that may be imposed in the Company's future financing arrangements.
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<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$(0.23) per share. Pro forma net tangible book value after giving effect to the
Acquisitions would have been $(0.50) per share as determined by dividing the pro
forma tangible net worth of the Company (pro forma tangible assets less pro
forma total liabilities) by the number of shares of Common Stock and Class B
Stock to be outstanding after giving effect to the Acquisitions, but before the
Offering. After giving effect to (i) the Acquisitions and (ii) the sale by the
Company of an estimated 2,350,000 shares of Common Stock offered at an assumed
price of $8.50 per share and the application of the estimated net proceeds
therefrom as set forth under "Use of Proceeds," the net pro forma tangible
book value of the Company as of December 31, 1996 would have been $0.78 per
share. This represents an immediate increase in the net tangible book value of
$1.56 per share to existing stockholders and an immediate dilution to new
investors purchasing Common Stock in the Offering of $7.72 per share. The
following table illustrates the per share dilution to new investors purchasing
Common Stock in the Offering:
Assumed initial public offering price
per share(1)......................... $ 8.50
Historical net tangible book
value.......................... $ (0.23)
Decrease due to Acquisitions,
but before the Offering........ (0.50)
Increase attributable to new
investors...................... 1.51
---------
Pro forma net tangible book
value per share after the
Offering....................... 0.78
---------
Dilution per share to initial public
offering investors................... $ 7.72
=========
- ------------
The dilution to new investors purchasing shares in the Offering will
increase if the initial public offering price is higher, and will decrease if
the initial public offering price is lower, than $8.50 per share.
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of December 31, 1996, the number of shares of Common Stock and
Class B Stock purchased from the Company, the total consideration to the Company
and the average price per share paid to the Company by existing stockholders and
the new investors purchasing shares from the Company in the Offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders(2)............. 7,132,486 75.2% $(4,775,000) (31.4)% $(0.67)
New investors........................ 2,350,000 24.8 19,975,000 131.4 8.50
--------- ------- ----------- -------
Total........................... 9,482,486 100.0% $15,200,000 100.0%
========= ======= =========== =======
</TABLE>
- ------------
(1) Before deducting estimated underwriting discount and estimated expenses of
the Offering payable by the Company.
(2) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Affiliated Practices before the
Offering, adjusted to reflect the payment of $6.4 million in cash as part of
the consideration for the Acquisitions. See "Use of Proceeds" and
"Capitalization."
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization
of the Company at December 31, 1996 and as adjusted to reflect (i) the
Acquisitions and (ii) the sale of 2,350,000 shares of Common Stock offered
hereby (assuming an offering price of $8.50 per share) and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with the unaudited Pro Forma Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
AS OF
DECEMBER 31, 1996
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Short-term debt and capital lease
obligations:
Current portion of long-term
debt and capital lease
obligations(1)................. $ 515 $ 636
---------- -----------
Total short-term debt and
capital lease obligations...... $ 515 $ 636
========== ===========
Long-term debt and capital lease
obligations:
Long-term debt and capital lease
obligations, net of current
portion(1)..................... $-- $ 412
Class B Common Stock subject to a put
option, $0.001 par value,
724,267 shares issued and
outstanding........................ -- --
Stockholders' equity (deficit):
Class A Common Stock, $0.001 par
value, 25,000,000 shares
authorized; 5,375,634 shares
issued and outstanding as
adjusted(2).................... -- 5
Class B Common Stock, $0.001 par
value, 4,106,852 shares
authorized; 3,382,585 shares
issued and outstanding as
adjusted....................... 3 3
Warrant to purchase
approximately 324,280 shares at
the initial offering price to
the public per share, assuming
a price of $8.50............... -- 1,700
Additional paid-in capital(3)... -- 6,981
Retained earnings (deficit)..... (887) (887)
---------- -----------
Total stockholders' equity
(deficit)............... (884) 7,802
---------- -----------
Total capitalization....... $ (884) $ 8,214
========== ===========
- ------------
(1) Includes the current and long-term portions, respectively, of capital lease
obligations of the Founding Affiliated Practices to be assumed by the
Company.
(2) Excludes (i) an aggregate of 236,363 shares of Common Stock issuable on
conversion of the Convertible Notes (which are expected to be repaid with
proceeds from the Offering), (ii) approximately 760,000 shares of Common
Stock subject to options granted pursuant to the 1996 Stock Option Plan and
(iii) approximately 324,280 shares of Common Stock issuable upon the
exercise of a warrant issued to TriCap Partners, with an exercise price per
share equal to the price to public per share set forth on the cover page of
this Prospectus, which warrant provides that the number of underlying shares
will be determined based upon the initial public offering price per share.
See "Management -- 1996 Stock Option Plan."
(3) Reflects the effects of the Offering and Acquisitions. The Offering will
result in estimated net proceeds of $16.1 million, which will be used to
repay approximately $2.6 million outstanding under the Convertible Notes
issued to TriCap, to reimburse approximately $400,000 of expenses incurred
by TriCap on behalf of Apple, to reflect the issuance to TriCap Partners of
a warrant with an estimated value of $1.7 million and to make a $500,000
cash payment to TriCap Partners upon completion of the Offering. The effect
of the Acquisitions on additional paid-in capital is equal to the aggregate
book value of the assets to be acquired from the Founding Affiliated
Practices, net of the aggregate liabilities to be assumed (including
$100,000 of certain indebtedness to be assumed by the Company), of $2.5
million, less the aggregate cash payments of $6.4 million to be made as
part of the consideration for the Acquisitions.
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following information is derived from the audited financial statements
of Apple included elsewhere in this Prospectus. This information does not
reflect the effect of the Acquisitions or the Offering.
YEAR ENDED
DECEMBER 31, 1996
-----------------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ --
Costs and expenses:
Salaries, wages and benefits.... 627
Rent............................ 20
Depreciation and amortization... 5
General and administrative
expenses....................... 232
--------
Total costs and expenses........ 884
--------
Income (loss) before income taxes.... (884)
Provision for income taxes........... --
--------
Net income (loss).................... $ (884)
========
DECEMBER 31, 1996
-----------------
BALANCE SHEET DATA:
Working capital...................... $(2,324)
Total assets......................... 1,461
Long-term debt and capital lease
obligations, net of current
portion............................ --
Stockholders' equity................. (884)
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE
HISTORICAL RESULTS SET FORTH IN THIS DISCUSSION AND ANALYSIS ARE NOT INDICATIVE
OF TRENDS WITH RESPECT TO ANY ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE
OF THE COMPANY. THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
The Company has conducted no significant operations to date but will be
acquiring, in connection with the Acquisitions, tangible and intangible assets
and liabilities of, and entering into Service Agreements with, the Founding
Affiliated Practices. The Company expects that its future growth will come from
(i) implementing a comprehensive operating strategy designed to drive internal
growth of the Affiliated Practices and (ii) entering into Service Agreements
with new Affiliated Practices and developing new orthodontic centers (including
satellite offices) with existing and future Affiliated Practices.
Through its Service Agreements, the Company will be providing a full
complement of practice management services to the Founding Affiliated Practices
in return for management service fees. Except with respect to two Service
Agreements providing for the payment of flat fees, the management service fees
earned by the Company will be in accordance with two general types of Service
Agreements -- the standard form of the Service Agreement ("Standard Contract")
and the alternative form of the Service Agreement ("Alternative Contract").
The Standard Contract calls for a calculation of the monthly service fee based
on the total revenues earned by the Founding Affiliated Practices, which is
defined by the agreement to represent 24% of the total contract value in the
initial month of a patient's treatment with the remainder of the contract
balance earned evenly over the balance of the contract term. From total
revenues, the orthodontists retain 31.5% of the Founding Affiliated Practices'
cash collections. There are adjustments to the service fee designed to both
provide incentives for the orthodontists to provide efficient patient treatment
and to increase the number of patients treated, as well as to ensure that the
orthodontists retain a minimum amount for payment of their compensation from
their respective practices on a monthly basis. The Alternative Contract will be
used in California. It is a cost-plus fee arrangement, whereby the service fee
includes the reimbursement of defined expenses incurred by Apple in the course
of providing services to the Founding Affilated Practice plus 13.5% of revenues.
The Company believes the fees to be generated by each of these formulas will be
reflective of the fair market value of the services provided and will be
comparable to the fees earned by other management service companies in the
respective jurisdictions where these arrangements will exist. In addition, with
respect to two of the Founding Affiliated Practices, the service fees will be
based on flat fees that are subject to adjustment on an annual basis. See
"Business -- Service Agreements."
The expenses incurred by the Company in fulfilling its obligations under
the Service Agreements are generally of the same nature as the operating costs
and expenses that would have otherwise been incurred by the Founding Affiliated
Practices, including salaries, wages and benefits of practice personnel
(excluding orthodontists and, in some cases, orthodontic assistants and other
professional personnel), orthodontic supplies and office supplies used in
administering their clinic practices, the office (general and administrative)
expenses of the practices and depreciation and amortization of assets acquired
from the Founding Affiliated Practices. In addition to the operating costs and
expenses discussed above, the Company will be incurring personnel and
administrative expenses in connection with establishing and maintaining a
corporate office, which will provide management, administrative, marketing and
development and acquisition services.
In accordance with Staff Accounting Bulletin ("SAB") No. 48, "Transfers
of Nonmonetary Assets by Promoters or Shareholders," published by the
Securities and Exchange Commission (the "Commission"), the acquisition of the
assets and assumption of certain liabilities for all of the Founding Affiliated
Practices pursuant to the Acquisitions are accounted for by the Company at the
transferors' historical cost basis, with the shares of common stock to be issued
in those transactions being valued at the historical cost of the nonmonetary
assets acquired net of liabilities assumed. The cash consideration will be
reflected as a
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dividend by Apple to the owners of the Founding Affiliated Practices. SAB No. 48
will not be applicable to any acquisitions made by the Company subsequent to the
Offering. It is currently anticipated that the Company's future acquisitions of
certain of the assets and liabilities of Affiliated Practices may result in
substantial annual noncash amortization charges for intangible assets in the
Company's statements of operations.
RESULTS OF OPERATIONS
The Company has conducted no significant operations to date and will not
conduct significant operations until the Acquisitions and the Offering are
completed. General and administrative expenses were incurred during the year
ended December 31, 1996 in connection with this Offering. The Company has
incurred and will continue to incur various legal, accounting, travel, personnel
and marketing costs in connection with the Acquisitions and the Offering, $2.6
million of which is being funded through the issuance of Convertible Notes to
TriCap and $0.4 million of which is being funded by other advances from TriCap.
The Convertible Notes are expected to be repaid from the proceeds of the
Offering. See "Use of Proceeds."
LIQUIDITY AND CAPITAL RESOURCES
A part of the Company's business strategy is to encourage Affilated
Practices to offer more affordable payment plans to patients. The Company does
not expect the affordable payment plans, or any potential increase in bad debt
expense resulting from these plans, to have any significant negative impact on
the working capital or liquidity of the Affiliated Practices. Moreover, the
Company believes the Founding Affiliated Practices have the financial
wherewithal to sustain any negative impact that may result from these payment
plans. Therefore, Apple does not anticipate that the offering by the Affiliated
Practices of more affordable payment plans will impair the Company's ability to
collect management service revenues from the Affiliated Practices. See
"Business -- Services and Operations -- Affordable Payment Plans."
The Company anticipates making routine capital expenditures for the
Founding Affiliated Practices during the remainder of 1997 of approximately $2.0
million to fund, among other things, the development of satellite offices. The
average cost of developing a satellite office (which may vary by geographic
market) is estimated to be approximately $250,000, including initial working
capital requirements. The Service Agreements provide for advances by the Company
to the Founding Affiliated Practices for working capital requirements (including
any deficits in cash flows of Founding Affiliated Practices resulting from,
among other things, development of satellite offices) and other purposes. Such
loans will generally bear interest at prime plus one percent and will be
repayable over varying periods of time not to exceed five years. It is
anticipated that the foregoing capital expenditures will be funded from the
Company's cash flow from operations. The Company also expects to make
acquisitions of additional orthodontic practices during 1997 that will involve
the use of cash and Common Stock.
The available proceeds from the Offering, after deducting specified uses of
proceeds, are estimated to be $6.2 million. Management believes that the
existing cash proceeds of the Offering combined with its cash flow from
operations will be sufficient to fund planned capital expenditures and ongoing
operations of the Company through the end of 1998. The Company is also seeking
to establish a revolving bank credit facility and intends to register two
million additional shares of Common Stock which, when combined with the
Company's cash resources, will be used in the Company's planned acquisition
program. Following completion of the Acquisitions, the Company anticipates
refinancing approximately $1.0 million of indebtedness of certain Founding
Affiliated Practices.
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BUSINESS
OVERVIEW
Apple was founded in July 1996 to provide practice management services to
orthodontic practices in the United States and Canada. The Company's objective
is to provide a full complement of practice management services designed to
drive internal growth by enhancing the ability of Affiliated Practices to: (i)
deliver quality, affordable orthodontic treatment primarily on a fee-for-service
basis; (ii) stimulate demand in their local markets by increasing consumer
awareness of the benefits, availability and affordability of orthodontic
treatment; and (iii) improve the productivity and profitability of their
practices. The Company will also seek to grow through the acquisition of
additional Affiliated Practices and the development of satellite offices that
complement existing geographic areas served by existing and future Affiliated
Practices. The Company will earn revenue by providing management,
administrative, development and other services to Affiliated Practices.
The Company has entered into definitive agreements to acquire substantially
all the tangible and intangible assets and assume certain liabilities of, and
provide long-term management services to, the Founding Affiliated Practices. The
aggregate consideration that will be paid by Apple to acquire the Founding
Affiliated Practices consists of (i) approximately $6.4 million in cash and (ii)
3,025,634 shares of Common Stock.
The Founding Affiliated Practices include 31 orthodontists and 58 offices
located in 13 states in the United States and in Calgary, Alberta. The Founding
Affiliated Practices were selected based on a variety of factors, including the
competitive and financial strengths and historical growth of their practices and
the potential for future growth in their markets. Apple also considered the
local and national reputations of the Founding Affiliated Practices within the
orthodontic services industry, their ability to manage multi-location practices
providing high levels of quality care and their desire to grow and improve the
operating efficiency of their respective practices. The Founding Affiliated
Practices were selected by Apple based on its management's extensive experience
with orthodontic practices in the United States and Canada. Of the 31 Founding
Affiliated Practices, nine are corporations (of which the orthodontist is a
stockholder and employee), 16 are professional corporations or professional
associations (of which the orthodontist is a stockholder and employee) and six
are sole proprietorships (owned and operated by the orthodontist). In connection
with the Acquisitions, each Founding Affiliated Practice has agreed to operate
through a professional corporation, which will employ, and will be owned by, the
orthodontist or orthodontists affiliated with such Founding Affiliated Practice.
For the year ended December 31, 1996, the Founding Affiliated Practices had
revenues ranging from approximately $200,000 to $1.9 million and had average
patient revenues of approximately $800,000. See "-- Summary of Terms of
Acquisitions."
INDUSTRY
INDUSTRY OVERVIEW. The orthodontic services industry is highly fragmented,
with over 90% of the approximately 9,000 orthodontists in the United States
operating as sole practitioners and less than 2% being affiliated with the only
existing public practice management company specializing in orthodontics. The
industry currently generates approximately $3.5 billion in annual gross
revenues, which have grown steadily at an average rate of 7.5% per year in
recent years. Based on published industry data, over 70% of orthodontic
treatments are performed on a private pay, fee-for-service basis, 25% of
treatments are covered by traditional forms of dental insurance (generally with
a 50% or greater co-payment by the patient) and the remaining 5% of treatments
involve other payment methods, including managed care networks. Managed care
represents only a small portion of the payor sources due to the elective nature
of most orthodontic treatments. Most orthodontic practices (including all the
Founding Affiliated Practices) do not accept payment by Medicare or Medicaid.
Orthodontic treatments are principally provided by orthodontists who have
completed two years of post-graduate studies following graduation from dental
school. The number of orthodontists in the United States has grown slowly since
1990, which management believes can be attributed to the limited number of
schools offering post-graduate orthodontic programs and the small class size at
each of those schools. In
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addition to orthodontists, a number of dentists provide various orthodontic
services. The industry information set forth in this Prospectus does not include
orthodontic treatments provided by dentists.
The table below summarizes certain information from the 1995 JCO Study
concerning the United States orthodontic services industry for each of the years
presented:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of orthodontists.............. 8,720 8,760 8,856 8,958 9,060
Number of new cases.................. 1,308,000 1,314,000 1,416,690 1,478,070 1,540,200
Average fee per case................. $ 3,050 $ 3,221 $ 3,401 $ 3,447 $ 3,492
</TABLE>
Based on a 1994 study performed by the Department of Orthodontics,
University of Florida College of Dentistry (the "University of Florida Study")
and management's experience, the Company believes the need for orthodontics
significantly exceeds the current demand. The University of Florida Study, which
was funded by a grant from the National Institute of Dental Research and
involved a statistical sample of approximately 3,700 children in Florida,
concluded that only approximately one out of every five children who need
orthodontics receives treatment. The University of Florida Study also indicated
that cost was a barrier to orthodontics. Children in higher socioeconomic groups
received treatment approximately six times more often than children in lower
groups despite no measurable difference in need among the groups. The University
of Florida Study did not address the market potential for adult patients, which
management believes is significant. The Company believes there is significant
opportunity to expand the orthodontic treatment population through improved
public awareness of the benefits, availability and affordability of orthodontic
treatment.
THE TRADITIONAL ORTHODONTIC PRACTICE. The traditional orthodontic practice
typically involves a single orthodontist, practicing at one primary location or
with an average of less than one satellite office, with a small number of
orthodontic assistants and business office personnel and, in some cases, an
orthodontic associate. According to the 1995 JCO Study, the average orthodontist
initiated treatment of 170 new patients in 1994 and maintained approximately 380
active patients. In addition, the 1995 JCO Study reports that only 1.3% of
orthodontists use television advertising to promote their practices. In the
traditional practice, the orthodontist manages all business aspects of the
practice. The use of third-party management services is not typical.
On an individual practice basis, the 1995 JCO Study reported median annual
revenues of $475,000 and median operating income of $191,000 in 1994. The median
overhead as a percentage of revenues was 55%, resulting in a 40% median
operating margin before orthodontist compensation, interest and taxes. Median
down payments were equal to approximately 25% of the total treatment cost.
Median case starts and active treatment cases were 170 and 380 per practice,
respectively, and the median case acceptance rate was 60%. Individual practices
on average generated over one-half of their referrals from dentists and less
than 7% of the practices utilized commercial advertising as a referral source.
Orthodontists believed they had the ability to increase case starts by 30%, yet
the median case starts have not increased significantly since 1981, the first
year of data presented in the study.
THE APPLE ORTHODONTIX APPROACH
The Company believes the traditional orthodontic practice is inefficient
and administratively burdensome to orthodontists, and can be financially
burdensome to patients, who traditionally pay approximately 25% of the total
contract amount as a down payment ($875 when applied to the average fee per case
in 1994, according to the 1995 JCO Study). The Company has developed a
comprehensive operating strategy designed to improve efficiency, increase the
number of new case starts and active cases handled by each orthodontist and
relieve orthodontists associated with Affiliated Practices of time-consuming
administrative responsibilities. As part of its operating strategy, the Company
will assist its Affiliated Practices in developing satellite offices to expand
the scope of the geographic areas they serve. The Company will also assist
Affiliated Practices in developing and implementing payment programs designed to
make orthodontic services more affordable to prospective patients, thereby
making their services available to a larger segment of the population in their
respective markets.
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The Company has implemented its operating strategy at a prototype practice
owned and, until June 1996, operated by the Company's Chairman and CEO, John G.
Vondrak, D.D.S. This practice has grown substantially since 1989, when Dr.
Vondrak acquired it, to approximately $1.9 million of revenues in 1996, which
management believes places it among the largest sole-practitioner orthodontic
practices in the United States. Among the factors contributing to this growth
have been the Company's practice-building program (consisting of a complete
training and operating program emphasizing clear, concise and consistent
communications to existing and prospective patients in order to maximize
satisfaction levels, generate referrals and increase new case acceptance rates)
and external marketing efforts, including television advertising focusing on
affordable payment plans offered by that practice. This prototype practice had a
case acceptance rate of approximately 71% in 1996.
The Company believes its approach provides unique benefits to orthodontists
who choose to affiliate with it by providing opportunities for the orthodontist
to: (i) drive internal growth by implementing the Company's operating strategy;
(ii) share in the increased profitability resulting from internal growth; (iii)
lower costs through economies of scale; (iv) participate in a cost-effective
national advertising program; (v) focus on patient care; and (vi) enhance
liquidity and diversification.
BUSINESS STRATEGY
The Company's business strategy emphasizes (i) implementing a comprehensive
operating strategy designed to drive internal growth of the Affiliated Practices
and (ii) expanding the Company's network of Affiliated Practices through an
aggressive acquisition program.
OPERATING STRATEGY. The primary elements of the Company's operating
strategy are (i) implementing practice-building and external marketing programs
designed to generate new patient starts through increased referrals from
existing and former patients and the use of multimedia advertising to stimulate
demand for treatment services, (ii) offering more affordable payment plans to
patients to broaden the market for orthodontic services, (iii) increasing the
operating efficiency of the Affiliated Practices by relieving the orthodontists
from various time-consuming administrative responsibilities and realizing
economies of scale, (iv) providing a systems-oriented approach to training and
education of clinic personnel to improve their communications with patients and
potential patients and increase their productivity, (v) developing satellite
offices to expand the geographic markets served by Affiliated Practices and (vi)
utilizing customized management information systems to provide detailed
financial and operating data and related analysis to Affiliated Practices and
management. Each of these elements is intended to drive the internal growth of
the Affiliated Practices while allowing them to maintain high levels of quality
care. However, operating results at each Affiliated Practice will be largely
dependent upon the skills and personality of the orthodontists employed by that
Affiliated Practice.
Management believes that the results of the prototype practice owned by Dr.
Vondrak demonstrate the effectiveness of the Company's operating strategy. In
July 1996, Dr. Vondrak delegated the operating responsibilities of this practice
to a newly hired orthodontist who recently completed her education, so that he
could devote his time fully to the formation of the Company. Since this
transfer, the continued application of the Company's operating strategy has
resulted in a comparable number of case starts based on a comparison of the
six-month period ended December 31, 1996 to the corresponding period in the
prior year.
Over time, the Company plans to implement a regional management structure
aligned with the locations of its Affiliated Practices. Management believes a
regional structure will allow it to respond to the management and operational
issues within a particular region in a more timely and focused manner. In
addition, a regional structure will allow management to compare the operating
results of its Affiliated Practices to regularly published regional industry
statistics.
EXPANSION STRATEGY. The Company intends to pursue an aggressive expansion
strategy designed to strengthen its position in its current markets and expand
its network of Affiliated Practices into markets it does not currently serve.
The Company believes that, due to the highly fragmented nature of the industry,
there are numerous orthodontic practices that are attractive candidates to
become Affiliated Practices.
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Additionally, the Company plans to focus on candidates who have strong
reputations in their local markets and the desire to implement the Company's
operating strategy. The Company intends to leverage the reputations and
relationships of the orthodontists affiliated with the Founding Affiliated
Practices to identify and develop growth opportunities with candidates to become
future Affiliated Practices. Many of these orthodontists hold, or have
previously held, leadership roles in various state, regional and national
associations or are affiliated with or teach at graduate orthodontic programs at
dental schools. The Company believes the visibility and reputation of these
individuals, combined with the acquisition experience of management, will
provide the Company with certain advantages in identifying, negotiating and
consummating future acquisitions.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The Company intends to
register two million additional shares of Common Stock under the Securities Act
subsequent to completion of the Offering for use in connection with future
acquisitions. These shares will generally be freely tradeable by non-affiliates
after their issuance, unless the sale thereof is contractually restricted. The
Company anticipates that the agreements entered into in connection with its
future acquisitions will contractually restrict the resale of all or a portion
of the shares issued in those transactions for varying periods of time.
SERVICES AND OPERATIONS
The Company will manage all aspects of the Affiliated Practices operations
other than the provision of orthodontic treatment. The Company will employ all
business personnel at the offices of the Affiliated Practices and, where
permitted by applicable law and governmental regulations, also will employ the
orthodontic assistants.
ADMINISTRATIVE. The Company will earn revenue by providing management and
other services to the Affiliated Practices, including staffing, education and
training, billing and collections, cash management, purchasing, inventory
management, payroll processing, employee benefits administration, advertising
production and other marketing support, patient scheduling, financial reporting
and analysis, productivity reporting and analysis, associate recruiting and
support for acquisitions, new site development and other capital requirements.
The Company believes the orthodontists at the Affiliated Practices will benefit
from the administrative and management support provided by Apple and that these
services will substantially reduce the amount of time the orthodontists are
required to spend on administrative matters and will enable them to dedicate
more time to the growth of their professional practices. Management believes
that through economies of scale the Company will be able to provide these
services at a lower cost than could be obtained by each of the Affiliated
Practices individually. In addition, the Company believes that, due to its size
and purchasing power, it will be able to negotiate discounts on, among other
things, orthodontic and office supplies, health and malpractice insurance and
equipment.
PRACTICE-BUILDING PROGRAM. Management believes patient satisfaction
levels, practice productivity and profitability can be substantially enhanced
through a consistent training program emphasizing practice-building techniques.
The Company will implement programs designed to generate growth in case starts
by increasing (i) referrals from existing and former patients and (ii) case
acceptance rates. These programs include a full complement of training,
operating and monitoring techniques emphasizing improvements in communications
with patients and patient satisfaction levels in all facets of operations,
including initial telephone contacts with prospective patients, initial
consultations and case presentations and written or telephonic follow-ups after
office visits. The Company's programs are designed to result in clear, concise
and consistent communications between the patient and the orthodontist and his
or her staff. It is management's belief that these programs will have a positive
effect on the patients' experience and therefore positively impact the number of
patient referrals and case acceptance rates of Affiliated Practices.
EXTERNAL MARKETING. The Company and the Affiliated Practices will utilize
multimedia advertising in local markets to stimulate demand for orthodontic
treatment and promote name recognition for Apple and the Affiliated Practices.
The general public traditionally has had little information about the
availability of
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orthodontic services or orthodontic fees prior to an initial consultation with
an orthodontist. The advertisements will address the two primary barriers to
receiving orthodontic treatment, availability and affordability, by focusing on
the availability of orthodontic services and the more affordable payment plans
offered by the Affiliated Practices. The advertisements will also stress the
quality of care available at the Affiliated Practices and the advantage of
receiving orthodontic treatment from a professionally trained orthodontist as
opposed to a general dentist, and will promote a toll-free number for ease of
scheduling an appointment with the local Affiliated Practice.
Generally, it is anticipated that an Affiliated Practice will spend an
amount equal to between 5% and 7% of its net revenues for advertising and
marketing, which the Company believes is significantly higher than the industry
average for traditional orthodontic practices. The Company will be responsible
for subcontracting the production of all broadcast advertising, which will be
tailored to meet local requirements. Advertisements will generally be
thirty-second television commercials and will include the names of the
affiliated orthodontists and the Company. The frequency and airing times for
these television ads will be determined by regional media consultants retained
by Apple and the Affiliated Practice in order to optimize penetration to target
market segments.
AFFORDABLE PAYMENT PLANS. Orthodontic services primarily involve private
pay, fee-for-service treatments. As part of its overall marketing strategy for
the Affiliated Practices, the Company intends to encourage the Affiliated
Practices to make orthodontic services available to a larger portion of the
population in their respective markets by offering more affordable payment
plans. Many of the Founding Affiliated Practices have historically received a
down payment equal to 25% of the total cost of services, with the remaining
amount paid equally over the term of treatment. It is contemplated that the
typical payment plan utilized after the Offering would consist of a modest
initial down payment and monthly payments thereafter for the duration of the
treatment period, generally between 26 and 34 months. Those Affiliated Practices
that offer the affordable payment plans will experience an initial decrease in
working capital. However, the Company believes the decrease in working capital
caused by the change in payment plans will be offset by an increase in the
number of patients receiving orthodontic treatment due to the combined effect of
advertising, offering more affordable payment plans and the use of its
practice-building program. The Company believes that offering more affordable
payment plans combined with the use of advertising will result in an increase in
the number of patients inquiring about orthodontic treatment. The Company also
believes that this anticipated increase combined with the use of its internal
marketing programs will result in an increase in the number of patients
receiving orthodontic treatment at the Affiliated Practices.
SATELLITE OFFICES. The Company intends to develop additional satellite
offices (or branch locations) within selected markets served by the Affiliated
Practices. The Company believes that the satellite offices will increase the
geographic area served by the Affiliated Practices, thereby (i) increasing the
potential market, (ii) leveraging the advertising budget of the Affiliated
Practices and (iii) achieving critical mass within its existing markets. It is
anticipated that the satellite offices will generally be located in high
traffic, retail-oriented areas.
Satellite offices developed by the Company will be staffed either on a
part-time basis by an orthodontist from an Affiliated Practice or on a full-time
basis by a newly recruited orthodontist, depending on the potential for
additional patients. The average cost of developing a satellite office (which
may vary by geographic market) is estimated to be approximately $250,000,
including initial working capital requirements. The Company will provide
management services and capital to develop satellite offices. The Company will
be responsible for selecting the site, negotiating the lease, designing the
office layout and furnishing the satellite office. The Company will also assist
the Affiliated Practices in recruiting orthodontists and support staff for those
satellite offices, which will be open full-time.
TRAINING AND EDUCATION. Staff and practice development programs are an
integral part of the Company's operating strategy. The Company believes its
programs will (i) increase the motivation and overall performance of the staff,
(ii) improve the level of patient satisfaction achieved by the Affiliated
Practices and (iii) improve the Company's ability to attract and retain
qualified personnel, which will
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collectively result in increased referrals from existing and former patients and
increased case acceptance rates for the Affiliated Practices. The Company will
provide each Affiliated Practice with consulting and educational services. These
services include a full training program covering all non-orthodontic aspects of
the practice and specific training designed for the efficient and effective use
of the Company's management information system.
Specifically, the Company's training program will provide each member of
the practice, from the receptionist to the orthodontist, with guidelines for
addressing questions and concerns of prospective and existing patients,
techniques for explaining treatment procedures and length of treatment,
parameters for establishing appropriate financial arrangements with each patient
and a systematic approach to monitoring the success of each area of training.
Training will be conducted both at individual clinics and in group sessions and
will include proprietary manuals, tapes and role playing activities.
MANAGEMENT INFORMATION SYSTEMS. The Company believes access to accurate,
relevant and timely financial and operating information is a key element to
providing practice management services to orthodontic practices. The Company
will offer a fully integrated financial reporting, productivity management and
patient management system at each Affiliated Practice. These systems are
designed to increase the productivity of the Affiliated Practices by enabling
the Company and the Affiliated Practices to cost-effectively monitor the
productivity of the Affiliated Practices, identify problem areas and
opportunities for improvement and advise on corrective action in a timely
manner. Productivity measures to be monitored will include case acceptance
rates, treatment times and case starts. In addition, the management information
systems will facilitate optimization of the orthodontists' time through
computerized scheduling and diagnostic and treatment recordkeeping systems. The
Company believes these systems will also improve the productivity of the
Affiliated Practices through benchmarking programs that identify and help
establish the most efficient operational procedures. As of the date of this
Prospectus, 12 of the 31 Founding Affiliated Practices have installed the
Company's management information system. This system will be made available to
the remaining Affiliated Practices following the closing of the Acquisitions.
LOCATIONS
Upon consummation of the Acquisitions, the Company will provide management
services to the following locations:
NUMBER OF
-------------------------
STATE OFFICES ORTHODONTISTS
- ------------------------------------- ------- --------------
Arizona.............................. 6 2
California........................... 10 7
Colorado............................. 10 5
Connecticut.......................... 5 3
Illinois............................. 3 1
New Mexico........................... 2 1
New York............................. 2 1
Nevada............................... 1 1
Montana.............................. 3 1
Pennsylvania......................... 4 2
Texas................................ 8 4
Utah................................. 1 1
Virginia............................. 2 1
Canada............................... 1 1
--
-------
Totals..................... 58 31
======= ==
In some metropolitan areas, the Company has and may seek to affiliate with
more than one Affiliated Practice in order to maximize advertising efficiencies.
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SUMMARY OF TERMS OF ACQUISITIONS
The aggregate consideration that will be paid by Apple to acquire the
Founding Affiliated Practices consists of (i) approximately $6.4 million in cash
and (ii) 3,025,634 shares of Common Stock. The Company will also assume certain
indebtedness of the Founding Affiliated Practices of approximately $100,000.
Apple will acquire substantially all the assets necessary to operate the
business of each of the Founding Affiliated Practices, except as limited by
applicable restrictions on the corporate practice of dentistry. See Note 6 to
the Notes to Financial Statements and " -- Government Regulation."
The consideration being paid by Apple for each Founding Affiliated Practice
was determined by arm's-length negotiations between Apple and a representative
of that Founding Affiliated Practice. Apple used the same valuation method to
negotiate the consideration being paid to each of the Founding Affiliated
Practices, including the practice wholly owned by Dr. Vondrak, which method was
based upon the Founding Affiliated Practice's gross revenue, growth potential
and newly acquired satellite offices or equipment.
In connection with the acquisition agreements relating to four of the
Founding Affiliated Practices, the Company agreed to indemnify the owners of
those practices against possible assertions against those owners by federal or
applicable state income tax authorities with respect to certain tax liabilities
arising as a result of the Acquisitions of those practices. Based on appraisals
and other analyses obtained or completed by the Company with respect to those
practices, the Company does not believe that any such indemnification
obligations will be material.
The closing of each Acquisition is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Affiliated Practices and their stockholders and by the Company; the performance
of each of their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Affiliated
Practice.
Any Founding Affiliated Practice's acquisition agreement may be terminated,
under certain circumstances, prior to the closing of the Offering: (i) by the
mutual consent of Apple and the Founding Affiliated Practice; (ii) if the
Offering and the acquisition of that Founding Affiliated Practice are not closed
by December 31, 1997; (iii) by the Founding Affiliated Practice or Apple if a
material breach or default is made by the other party in the observance or in
the due and timely performance of any of the covenants, agreements or conditions
contained in the acquisition agreement; or (iv) by Apple if the Founding
Affiliated Practice breaks its continuing obligation to promptly provide Apple
with specified supplemental information.
SERVICE AGREEMENTS
Upon consummation of the Acquisitions, the Company will enter into a
Service Agreement with each Founding Affiliated Practice and its orthodontist
employees under which the Company will become the exclusive manager and
administrator of non-orthodontic services relating to the operation of the
Founding Affiliated Practice. The following is intended to be a brief summary of
the typical form of Service Agreement the Company will enter into with each
Founding Affiliated Practice. The Company expects to enter into similar
agreements with Affiliated Practices in the future. The actual terms of the
various Service Agreements vary from the description below on a case-by-case
basis, depending on negotiations with the individual Founding Affiliated
Practices and the requirements of applicable law and governmental regulations.
The service fees (the "Service Fees") payable to the Company by the
Founding Affiliated Practices under the Service Agreements vary based on the
fair market value, as determined in arm's-length negotiations, for the nature
and amount of services provided. Except with respect to Service Agreements
providing for the payment of flat fees, the Service Fees earned by the Company
will be in accordance with the Company's two general types of Service
Agreements. The Standard Contract calls for a calculation of the monthly Service
Fee based on the total revenues earned by the Founding Affiliated Practices,
which is
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defined by the agreement to represent 24% of the total contract value in the
initial month of a patient's treatment with the remainder of the contract
balance earned evenly over the balance of the contract term. From total
revenues, the orthodontists retain 31.5% of the Founding Affiliated Practices'
cash collections. There are adjustments to the service fee designed to both
provide incentives for the orthodontists to provide efficient patient treatment
and to increase the number of patients treated, as well as to ensure that the
orthodontists retain a minimum amount for payment of their compensation from
their respective practices on a monthly basis. The Alternative Contract will be
used in California. It is a cost plus fee arrangement, whereby the service fee
includes the reimbursement of defined expenses incurred by Apple in the course
of providing services to the Founding Affiliated Practice plus 13.5% of
revenues. The Company believes the fees to be generated by each of these
formulas will be reflective of the fair market value of the service provided and
will be comparable to the fees earned by other management service companies in
the respective jurisdictions where these arrangements will exist. In addition,
with respect to two of the Founding Affiliated Practices, the service fees will
be based on flat fees at levels negotiated between the Company and the
applicable Founding Affiliated Practice and are subject to adjustment on an
annual basis. The Company and the Founding Affiliated Practices have selected
the type of Service Fee in each jurisdiction based on (i) the historical
arrangements utilized by medical and dental professionals in that jurisdiction
to contract for management services and (ii) applicable regulations in that
jurisdiction governing medical and dental professionals. There can be no
assurance, however, that the Service Fee used in a particular jurisdiction will
comply with such regulations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
Pursuant to each Service Agreement, the Company will, among other things,
(i) act as the exclusive manager and administrator of non-orthodontist services
relating to the operation of the Founding Affiliated Practice, subject to
matters reserved to the Founding Affiliated Practice, (ii) administer the
billing of patients, insurance companies and other third-party payors and
collect on behalf of the Founding Affiliated Practice the fees for professional
orthodontic and other services and products rendered or sold by the Founding
Affiliated Practice, (iii) provide, as necessary, clerical, accounting, payroll,
legal, bookkeeping and computer services and personnel, information management,
tax return information, printing, postage and duplication services and
transcribing services, (iv) supervise and maintain custody of substantially all
files and records, (v) provide facilities, equipment and furnishings for the
Founding Affiliated Practice, (vi) prepare, in consultation with the Affiliated
Practice, all annual capital and operating budgets, (vii) order and purchase
inventory and supplies as reasonably requested by the Founding Affiliated
Practice and (viii) implement, in consultation with the Founding Affiliated
Practice, advertising programs.
Under each Service Agreement, the applicable Founding Affiliated Practice
retains the responsibility for, among other things, (i) hiring, compensating and
supervising orthodontist employees and other licensed dental professionals, (ii)
ensuring that orthodontists have the required licenses, credentials, approvals
and other certifications appropriate to the performance of their duties and
(iii) complying with federal and state laws, regulations and ethical standards
applicable to the practice of orthodontics. In addition, the Founding Affiliated
Practice will be exclusively in control of all aspects of the practice of
orthodontics and the provision of orthodontic services.
Each Service Agreement is for an initial term of twenty years, with
automatic extensions (unless specified notice is given) of five years. A Service
Agreement may be terminated by either party thereto if the other party (i) files
a petition in bankruptcy or other similar events occur or (ii) defaults in the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Founding Affiliated Practice or an
orthodontist employee engages in conduct for which the orthodontist employee's
license to practice dentistry is revoked or suspended or is the subject of any
restrictions or limitations by any governmental authority to such an extent that
he, she or it cannot engage in the practice of orthodontics or (ii) upon the
death, disability or retirement of the orthodontist. Each orthodontist that is a
party to a Service Agreement may generally terminate his obligations thereunder
on the fifth anniversary of the date he entered into the Service Agreement.
Certain of the Service Agreements also provide that they may be terminated by
the
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applicable Founding Affiliated Practice if any governmental authority imposes
retrictions on the ability of any orthodontist employee to practice orthodontics
during the term of the Agreement.
During the term of the Service Agreement and, subject to certain exceptions
and limitations, for a period of two years thereafter, the Founding Affiliated
Practice and each of its orthodontist employees agrees not to compete with the
Company or the other practices for which the Company provides management
services within a specified geographic area. The Founding Affiliated Practice
also agrees not to disclose certain confidential and proprietary information
relating to the Company and the Affiliated Practices.
The Founding Affiliated Practice is responsible for obtaining professional
liability insurance for the employees of the Founding Affiliated Practice (and
which will name the Company as an additional insured), and the Company is
responsible for obtaining general liability and property insurance for the
Founding Affiliated Practice.
Upon termination of a Service Agreement, the Founding Affiliated Practice
has the option to purchase and assume, and the Company has the option to require
the Founding Affiliated Practice to purchase and assume, the assets and
liabilities related to the Founding Affiliated Practice (with the assets being
valued for those purposes at the fair market value thereof), except in certain
circumstances where the Founding Affiliated Practice or the Company, as
applicable, was in breach of the Service Agreement.
ORTHODONTIST EMPLOYMENT AGREEMENTS
Upon consummation of the Acquisitions, each Founding Affiliated Practice
will be a party to an employment agreement with each orthodontist associated
with its practice (the "Orthodontist Employment Agreements"), including each
orthodontist who will receive cash or Common Stock in the Acquisition of such
Founding Affiliated Practice. Substantially all the Orthodontist Employment
Agreements with orthodontists who will receive cash or Common Stock in the
Acquisitions are for an initial term of five years, and continue thereafter on a
year-to-year basis until terminated under the terms of the agreements.
COMPETITION
The Company anticipates facing substantial competition from other companies
to establish affiliations with additional orthodontic practices. The Company is
aware of one public and two private practice management companies focused on
orthodontics and several companies pursuing similar strategies in other segments
of the health care industry (including dentistry). Certain of these competitors
have greater financial and other resources than the Company (including more
established trading histories for their shares of common stock, which may be
used as currency in making acquisitions). Additional companies with similar
objectives may enter the Company's markets and compete with the Company. In
addition, the business of providing orthodontic services is highly competitive
in each market in which the Company will operate. Each of the Founding
Affiliated Practices faces local competition from other orthodontists, general
dentists and pedodontists (dentists specializing in the care of children's
teeth), some of whom have more established practices. Dentists are not
restricted by law or any other governmental authority from providing orthodontic
services. Management believes the increase in recent years of dentists providing
orthodontic services has limited the growth of patient case starts performed by
orthodontists. There can be no assurance that the Company or the Affiliated
Practices will be able to compete effectively with their respective competitors,
that additional competitors will not enter their markets or that additional
competition will not have a material adverse effect on the Company.
EMPLOYEES
At the date of this Prospectus, the Company employed ten persons and upon
consummation of the Acquisitions, the Company expects that it will have
approximately 284 employees of which approximately 15 will be employed at the
Company's headquarters and approximately 269 will be employed at the locations
of the Founding Affiliated Practices. None of the Company's employees are
represented by collective bargaining agreements. The Company has not experienced
any work stoppages as a result of labor disputes and the Company considers its
employee relations to be good.
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LITIGATION AND INSURANCE
The Affiliated Practices provide orthodontic services to the public and are
exposed to the risk of professional liability and other claims. Such claims, if
successful, could result in substantial damage awards to the claimants that may
exceed the limits of any applicable insurance coverage. Although the Company
does not control the practice of orthodontics by the Affiliated Practices, it
could be asserted that the Company should be held liable for malpractice of an
orthodontist employed by an Affiliated Practice. Each Affiliated Practice has
undertaken to comply with all applicable regulations and legal requirements, and
the Company maintains liability insurance for itself and it is anticipated that
the Company will be named as an additional insured party on the liability
insurance policies of the Affiliated Practices. The Founding Affiliated
Practices have agreed to maintain comprehensive professional liability
insurance, generally with limits of not less than $1.0 million per claim and
with aggregate policy limits of not less than $3.0 million per orthodontist and,
in the event a Founding Affiliated Practice employs more than one orthodontist,
the Founding Affiliated Practices will maintain such insurance with a separate
limit for claims against that Founding Affiliated Practice in an amount
acceptable to Apple. There can be no assurance, however, that a future claim or
claims will not be successful or, if successful, will not exceed the limits of
available insurance coverage or that such coverage will continue to be available
at acceptable costs.
On December 10, 1996, OCA filed a complaint in the United States District
Court for the Eastern District of Louisiana against Apple, Dr. Vondrak, John G.
Vondrak, P.C. and JGVAOI, alleging, among other things, misappropriation of
trade secrets and certain breaches of a confidentiality agreement executed by
Dr. Vondrak, on behalf of John Vondrak, P.C., in favor of OCA. While Apple is
not a party to the confidentiality agreement, OCA has alleged that the Company
should be bound by its terms as a result of the relationship between Dr. Vondrak
and Apple (specifically, OCA has alleged that Dr. Vondrak and Apple are alter
egos and, alternatively, that Dr. Vondrak was acting as Apple's agent when he
executed the confidentiality agreement). OCA's complaint states that OCA is
seeking monetary damages in excess of $75,000. The Company intends to vigorously
defend against the claims made by OCA, which the Company believes, based on
advice of counsel, are without merit.
The Company is not currently a party to any other claims, suits or
complaints relating to services and products provided by the Company or the
Founding Affiliated Practices, although there can be no assurances that such
claims will not be asserted against the Company in the future. The Company will
become subject to certain pending claims as the result of successor liability in
connection with the Acquisitions; however, it is the opinion of management that
the ultimate resolution of those claims will not have a material adverse effect
on the financial position or operating results of the Company.
The Founding Affiliated Practices have maintained professional liability
insurance coverage on a claims-made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. The Company intends to acquire similar coverage after
the closing of the Acquisitions, since the Company, as a result of the
Acquisitions, will in some cases succeed to the liabilities of the Founding
Affiliated Practices. Therefore, claims may be asserted after the Acquisitions
against the Company for events that occurred prior to the Acquisitions.
GOVERNMENT REGULATION
The orthodontic services industry is regulated extensively at both the
state and federal levels. Regulatory oversight includes, but is not limited to,
considerations of fee-splitting, corporate practice of orthodontics and state
insurance regulation.
FEE-SPLITTING; CORPORATE PRACTICE OF ORTHODONTICS
The laws of many states prohibit business corporations such as the Company
from engaging in the practice of orthodontics or employing orthodontists to
practice orthodontics and prohibit orthodontists from splitting fees with
non-orthodontists. The specific restrictions against the corporate practice of
orthodontics, as well as the interpretation of those restrictions by state
regulatory authorities, vary from state to state. The restrictions are generally
designed to prohibit a non-orthodontic entity (such as the Company) from
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controlling the professional assets of an orthodontic practice (such as patient
records and payor contracts), employing orthodontists to practice orthodontics
(or, in certain states, employing dental hygienists or orthodontic assistants),
or controlling the content of an orthodontist's advertising or professional
practice. Pursuant to the agreements entered into in connection with the
Acquisitions, Apple will neither acquire any professional assets nor employ any
orthodontists who will provide orthodontic services at any of the Founding
Affiliated Practices' locations. Although John G. Vondrak, D.D.S., the Company's
Chief Executive Officer, is the sole shareholder of JGVAOI, a Founding
Affiliated Practice, it is not contemplated that he will be providing any
orthodontic services at JGVAOI or any other Affiliated Practice. As provided in
the Service Agreements, the Company does not control the practice of
orthodontics or employ orthodontists to practice orthodontics. Moreover, in
states in which it is prohibited, the Company does not employ orthodontic
hygienists or orthodontic assistants. The Company provides management services
to the Affiliated Practices, and believes that the management fees the Company
charges for those services are consistent with the laws and regulations of the
jurisdictions in which it operates. Therefore, the Company believes it would not
be regarded as "owner," "operator" or "manager" of the Affiliated
Practices within the meaning of those terms under the state orthodontic practice
acts and believes that its operations comply with the above-described laws to
which it is subject.
The laws of many states also prohibit orthodontists from sharing
professional fees with non-orthodontic entities. There can be no assurance that
a review of the Company's business relationships by courts or regulatory
authorities will not result in determinations that could prohibit or otherwise
adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of orthodontics and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.
State dental boards do not generally interpret these prohibitions as
preventing a non-orthodontic entity from owning non-professional assets used by
an orthodontist in an orthodontic practice or providing management services to
an orthodontist for a fee provided that the following conditions are met: a
licensed dentist has complete control and custody over the professional assets;
the non-orthodontic entity does not employ or control the orthodontists (or, in
some states, orthodontic hygienists or orthodontic assistants); all orthodontic
services are provided by a licensed dentist; licensed dentists have control over
the manner in which orthodontic care is provided and all decisions affecting the
provision of orthodontic care. State laws generally require that the amount of a
management fee be reflective of the fair market value of the services provided
by the management company and in certain states require that any management fee
be a flat fee or cost-plus fee based on the cost of services performed by the
Company. In general, the state orthodontic practice acts do not address or
provide any restrictions concerning the manner in which companies account for
revenues from an orthodontic practice subject to the above-noted restrictions
relating to control over the professional activities of the orthodontic
practice, ownership of the professional assets of an orthodontic practice and
payments for management services. See "Risk Factors -- Government Regulation."
STATE INSURANCE REGULATION
Although the Company does not anticipate entering into managed care
contracts, there are certain regulatory risks associated with the Company's role
in negotiating and administering managed care contracts. The application of
state insurance laws to other than various types of fee for service arrangements
is an unsettled area of law and is subject to interpretation by regulators with
broad discretion. As the Company or the Affiliated Practices contract with
third-party payors, including self-insured plans, for certain non-fee for
service basis arrangements, the Company may become subject to state insurance
laws. Specifically, in some states, state insurance regulators may determine
that the Company or an Affiliated Practice is engaged in the business of
insurance because some of the managed care contracts to which an Affiliated
Practice may become a party may contain capitation features. The Company is
reviewing, and where appropriate modifying, the terms of certain of its
capitation contracts to reduce the likelihood that
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they could be characterized as insurance contracts. In the event that the
Company or an Affiliated Practice is determined to be engaged in the business of
insurance, it could be required either to seek licensure as an insurance company
or to change the form of the relationships with third-party payors and, as a
result the Company's revenues may be adversely affected.
HEALTH CARE REFORM PROPOSALS
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what, if any, legislative proposals will be adopted in the future
or what actions federal or state legislatures or third-party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. Health care reform legislation could have a material adverse effect
on the operations of the Company, and changes in the health care industry, such
as the growth of managed care organizations and provider networks, may result in
lower payment levels for the services of orthodontic practitioners and lower
profitability for Affiliated Practices.
EXTENT OF PROTECTION OF PROPRIETARY RIGHTS
Apple relies in part on trademark, service mark, trade dress, trade secret,
unfair competition and copyright laws to protect its intellectual property
rights. There can be no assurance that the actions that have been taken by the
Company will be adequate to protect its intellectual property rights from
misappropriation by others, that the Company's proprietary information will not
become known to competitors, that others will not independently develop
substantially equivalent or better intellectual properties that do not infringe
on the Company's intellectual property rights or that others will not assert
rights in, and ownership of, proprietary rights of the Company. Furthermore, the
Company's rights to its "APPLE ORTHODONTIX" common law service mark may be
limited in market areas where a similar trademark or service mark may already be
in use. The Company has not applied for or obtained any registrations of its
trademarks or service marks. The Company is aware of several other businesses
that utilize an "APPLE" service mark in connection with the provision of
general dental services, some of which have obtained federal or state trademark
registrations. The Company is aware of only one other orthodontic practice in
the United States that utilizes a service mark similar to the Company's, and
that practice is not located in a market where any of the Founding Affiliated
Practices' offices are located.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the Company's
directors, the executive officers and key employees of the Company (ages are as
of March 31, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
John G. Vondrak, D.D.S......................... 56 Chairman of the Board and Chief Executive Officer
Robert J. Syverson............................. 47 President and Chief Operating Officer
Michael W. Harlan.............................. 36 Vice President and Chief Financial Officer
H. Steven Walton............................... 39 Vice President of Acquisitions
W. Daniel Cook................................. 41 Chief Administrative Officer and a Director
William W. Sherrill............................ 70 Director
LeeAnn Peniche*................................ 36 Director of Training
Wm. Randol Womack, D.D.S.*..................... 58 Director of Business Development
Charles W. Sommer*............................. 32 Controller
</TABLE>
- ------------
* Key Employee
The executive officers of the Company are elected annually by the Board of
Directors of the Company and serve at the discretion of the Board.
JOHN G. VONDRAK, D.D.S. has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since October 1996 and has served as a
director of the Company since July 1996. Dr. Vondrak has been the President and
sole shareholder of JGVAOI, one of the Founding Affiliated Practices, for more
than the past five years. Dr. Vondrak is a licensed dentist, a graduate of an
American Dental Association accredited orthodontic program and has maintained a
private orthodontic practice for over 24 years. He is a member of the American
Association of Orthodontists and the Southwest Society of Orthodontists and has
served as President of the New Mexico Orthodontic Society (1979).
ROBERT J. SYVERSON has been President of the Company since November 1996
and Chief Operating Officer of the Company since October 1996. From July 1996
through October 1996, Mr. Syverson served as a consultant to the Company on
operational and financial matters. From February 1979 through April 1996, Mr.
Syverson held various executive positions in the finance operations and sales
departments of "A" Company Orthodontics, a manufacturer and supplier of
orthodontic materials. Positions included Vice President of Finance, Vice
President of Operations, Vice President International Sales and most recently,
Executive Vice President Sales. "A" Company Orthodontics was an affiliate of
Johnson & Johnson from April 1982 through June 1994. Prior thereto, Mr. Syverson
held various positions with Coopers & Lybrand as a certified public accountant,
where he was a manager from July 1977 through January 1979.
MICHAEL W. HARLAN has been Vice President and Chief Financial Officer of
the Company since March 1997. From December 1996 to February 1997, Mr. Harlan
served as a consultant to the Company on financial and accounting matters. From
April 1991 through December 1996, Mr. Harlan held various positions in the
finance and acquisition departments of Sanifill, Inc., an international
environmental services company, where he had been the Treasurer since September
1993. While at Sanifill, Inc., Mr. Harlan participated in over 100 acquisitions
and was actively involved in raising in excess of $500 million of public and
private capital. From May 1982 through April 1991, Mr. Harlan held various
positions in the tax and corporate financial consulting services division of
Arthur Andersen LLP, where he had been a manager since July 1986. Mr. Harlan is
a certified public accountant.
H. STEVEN WALTON is Vice President of Acquisitions. Mr. Walton served as
Vice President -- Government Affairs and General Counsel of Sanifill, Inc., an
international environmental services company, from June 1994 to August 1996.
Sanifill was acquired by USA Waste Services, Inc. in August 1996, and Mr. Walton
served as Vice President -- Business Development for USA Waste from August 1996
to March 1997. Before joining Sanifill, Mr. Walton was Senior Vice President and
General Counsel of Catalyst
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Energy Corporation, an independent power company, and Of Counsel to the law firm
Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Missouri.
W. DANIEL COOK has served as a director of the Company since October 1996
and as Chief Administrative Officer since February 1997. From December 1996 to
January 1997 Mr. Cook served as a consultant to the Company on various legal
matters. Prior thereto he was a partner at the law firm of Breard, Raines &
Cook, P.L.L.C. (1996 to 1997) and was associated with the law firm of Page,
Mannio, Peresich, Dickinson & McDermott, P.L.L.C. (1991 to 1995).
WILLIAM W. SHERRILL has served as a director of the Company since October
1996. He is an Executive Professor at the University of Houston College of
Business Administration and is the Director for the University of Houston's Conn
Center for Entrepreneurship & Innovation. Mr. Sherrill was formerly the
principal of William W. Sherrill, Financial Consultants from 1974 to 1981. From
1971 to 1974, Mr. Sherrill served as the President of Associates Corporation of
North America and was a director of Gulf and Western Industries, Inc. Before
joining Associates Corporation, he was appointed by the President of the United
States in 1967, and confirmed by the U.S. Senate, to fill an unexpired term as
Governor of the Federal Reserve Board in Washington D.C. Mr. Sherrill was
reappointed by the President, and again confirmed by the Senate, to a full
14-year term on the Board of Governors. Prior to his Federal Reserve
appointment, he was the Director of the Federal Deposit Insurance Corporation,
being appointed by the President, and confirmed by the Senate, to the FDIC's
three-member Board of Directors. Before joining the FDIC, he was President and
Chief Operating Officer of the Homestead Bank, Houston, Texas, from 1963 to
1966. Mr. Sherrill is being appointed to the Company's Board of Directors
pursuant to the provisions of a funding agreement between Apple and TriCap. This
funding agreement will terminate pursuant to its terms upon completion of the
Offering. See "Certain Transactions -- Agreements with TriCap."
LEEANN PENICHE has been Director of Training of the Company since March
1997. From September 1996 to February 1997, Ms. Peniche served as a consultant
to the Company on various practice development matters. In July 1989, Ms.
Peniche founded Peniche & Associates, Inc., a consulting firm specializing in
the development and implementation of practice development techniques for
orthodontic practices throughout North America, where she has served as its
President from inception to the date of this Prospectus. Ms. Peniche has entered
into a three-year employment agreement with the Company. From June 1978 until
July 1989, Ms. Peniche held various positions within several orthodontic
clinics, including dental assistant and office manager. From January 1985 until
September 1991, Ms. Peniche was on the faculty of Paradigm Practice Management
Company, where she specialized in training orthodontists and their staff in
practice development activities. Ms. Peniche is a frequent lecturer with the
American Association of Orthodontics, the Pacific Coast Orthodontic Society and
numerous other private orthodontic societies. Ms. Peniche is a Registered Dental
Assistant, specializing in orthodontics.
WM. RANDOL WOMACK, D.D.S., has been Director of Business Development since
March 1997. From December 1996 to February 1997, Dr. Womack has served as a
consultant to the Company. Prior thereto, Dr. Womack practiced orthodontics
beginning in 1966 in Clovis, New Mexico, with a satellite practice in Tucumari,
New Mexico, and subsequently established a practice in Phoenix, Arizona, where
he has practiced orthodontics since 1972.
CHARLES W. SOMMER has been Controller of the Company since March 1997. From
January 1997 to February 1997, Mr. Sommer served as a consultant to the Company
on various accounting matters. From February 1996 through January 1997, Mr.
Sommer was the Corporate Controller of COREStaff, Inc., a publicly traded,
national provider of temporary services, which has grown through acquisitions
since its inception. From November 1993 through February 1996, Mr. Sommer was
assistant corporate controller of Sanifill, Inc., where he was responsible for
Commission reporting and financial due diligence on acquisitions. From July 1986
through November 1993, Mr. Sommer held various positions in the audit division
of Arthur Andersen LLP, where he had been a manager since July 1990. Mr. Sommer
is a certified public accountant.
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BOARD OF DIRECTORS
The Board of Directors of the Company currently is composed of three
directors. The Company intends to expand the Board of Directors shortly after
the Offering to add two additional directors, neither of whom will be affiliated
with the Company or its affiliates. The Board of Directors will be divided into
three classes with two directors in each class, with the term of one class
expiring at the annual meeting of stockholders in each year, commencing 1998. At
each annual meeting of stockholders, directors of the class the term of which
then expires will be elected by the holders of the Common Stock to succeed those
directors whose terms are expiring.
On closing of the Offering, there will be three committees of the Board:
Audit, Compensation and Executive. The members of the Audit and Compensation
Committees will not be employees of the Company.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $2,000 for attendance at each Board of
Directors meeting and $1,000 for each committee meeting (unless held on the same
day as a Board of Directors meeting) and an initial grant of nonqualified
options to purchase 12,500 shares of Common Stock. See " -- 1996 Stock Option
Plan." All directors of the Company are reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
and for other expenses incurred in their capacity as directors of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by the Company
during the fiscal year 1996 for its Chairman of the Board and Chief Executive
Officer.
ANNUAL
COMPENSATION
NAME SALARY
- ------------------------------------- -------------
John G. Vondrak, D.D.S. ............. $75,000(1)
- ------------
(1) Dr. Vondrak received no cash bonus or other form of annual compensation
other than salary during 1996.
Apple was incorporated in July 1996 and has not conducted any operations to
date other than in connection with the Offering and the Acquisitions. The
Company anticipates that during 1997 its most highly compensated executive
officers will be Dr. Vondrak and Messrs. Syverson, Harlan, Walton and Cook (the
"Named Executive Officers"), each of whom has entered or will enter into an
employment agreement providing for an annual salary of $180,000, $150,000,
$130,000, $130,000 and $120,000, respectively, and providing that they be
full-time employees of Apple. See " -- Employment Agreements."
In addition to base salary, the Named Executive Officers through their
employment agreements are eligible for bonuses based on earnings performance of
the Company, and Mr. Walton is entitled to receive certain commissions upon the
consummation of future acquisitions.
In April 1997, the Company granted options to purchase 135,000 shares,
100,000 shares, 90,000 shares, 179,295 shares and 70,000 shares of Common Stock
to Dr. Vondrak, Mr. Syverson, Mr. Harlan, Mr. Walton and Mr. Cook, respectively,
under the Company's 1996 Stock Option Plan, exercisable at the initial public
offering price per share set forth on the cover page of this Prospectus. Such
options will expire in April 2007 and will vest, with respect to all but one
option to acquire 94,295 shares granted to Mr. Walton, as to 25% of the
underlying shares on the date the Offering is consummated and with respect to
the remaining underlying shares on the next three anniversaries of such date in
25% increments. With respect to the option to acquire 94,295 shares granted to
Mr. Walton, such option vests as to 50% of the underlying shares on the date the
Offering is consummated and as to the remaining underlying shares on the first
anniversary of such date. See "-- 1996 Stock Option Plan."
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Vondrak and
Messrs. Syverson, Harlan, Walton and Cook. The following summary of these
agreements, which will be effective on the closing of the Acquisitions and the
Offering, does not purport to be complete and is qualified by reference to such
agreements, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. Each of these agreements provides
for an annual base salary in an amount not less than the initial specified
amount and entitles the employee to participate in all the Company's
compensation plans (as defined) in which other executive officers of the Company
participate. Each of these agreements also has a continuous three-year term
subject to the right of the Company and the employee to terminate the employee's
employment at any time. If the employee's employment is terminated by the
Company without cause (as defined) or by the employee with good reason (as
defined), the employee will be entitled, during each of the years in the
three-year period beginning on the termination date, to (i) periodic payments
equal to his average annual cash compensation (as defined) from the Company,
including bonuses, if any, during the two years (or such shorter period of
employment) preceding the termination date, and (ii) continued participation in
all the Company's compensation plans (other than the granting of new awards
under the 1996 Stock Option Plan or any other performance-based plan). Except in
the case of a termination for cause, any stock options previously granted to the
employee under the Incentive Plan that have not been exercised and are
outstanding as of the time immediately prior to the date of his termination will
remain outstanding (and continue to become exercisable pursuant to their
respective terms) until exercised or the expiration of their term, whichever is
earlier. If a change of control (as defined) of the Company occurs, the employee
will be entitled to terminate his employment at any time during the 365-day
period following that change of control and receive a lump-sum payment equal to
three times his highest annual base salary under the agreement (plus such
amounts as may be necessary to hold the employee harmless from the consequences
of any resulting excise or other similar purpose tax relating to "parachute
payments" under the Internal Revenue Code of 1986, as amended (the "Code")).
Each employment agreement contains a covenant limiting the employee's right to
compete against the Company for a period of one year following termination of
employment.
Each Founding Affiliated Practice will enter into an employment agreement
with its orthodontist employees. See "Business -- Orthodontist Employment
Agreements."
1996 STOCK OPTION PLAN
In December 1996, the Board of Directors adopted, and the stockholders of
the Company approved, the 1996 Stock Option Plan. The purpose of the 1996 Stock
Option Plan is to provide employees, non-employee directors, advisors and
orthodontists with practice management contracts with the Company or a
subsidiary with additional incentives by increasing their proprietary interest
in the Company. The Company has reserved 1,000,000 shares of Common Stock for
use in connection with the 1996 Stock Option Plan (which includes 760,000 shares
subject to options previously granted). Beginning with the Company's first
fiscal quarter after the closing of this Offering and continuing each fiscal
quarter thereafter, the number of shares available for use in connection with
the 1996 Stock Option Plan will be the greater of 1,000,000 or 12% of the number
of shares of Common Stock outstanding on the last day of the preceding calendar
quarter.
The 1996 Stock Option Plan provides for the grant of incentive stock
options ("ISOs"), as defined in Section 422 of the Code, and nonqualified
stock options (collectively, "Awards"). Following the consummation of the
Offering, the 1996 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors, which will be comprised of not less than
two members of the Board of Directors (the "Committee"). Prior to the
consummation of the Offering, the 1996 Stock Option Plan had been administered
by the Company's full Board of Directors. The Committee has, subject to the
terms of the 1996 Stock Option Plan, the sole authority to grant Awards under
the 1996 Stock Option Plan, to interpret the 1996 Stock Option Plan and to make
all other determinations necessary or advisable for the administration of the
1996 Stock Option Plan.
36
<PAGE>
All of the Company's employees, non-employee directors, advisors and
orthodontists with practice management contracts with the Company or a
subsidiary are eligible to receive Awards under the 1996 Stock Option Plan, but
only employees of the Company are eligible to receive ISOs. Awards will be
exercisable during the period specified in each option agreement and will
generally be exercisable in installments pursuant to a vesting schedule to be
designated by the Committee. Notwithstanding the provisions of any option
agreement, options will become immediately exercisable in the event of certain
events including certain merger or consolidation transactions and changes in
control of the Company. No option will remain exercisable later than ten years
after the date of grant (or five years from the date of grant in the case of
ISOs granted to holders of more than 10% of Common Stock).
The exercise price for ISOs granted under the 1996 Stock Option Plan may be
no less than the fair market value of the Common Stock on the date of grant (or
110% of the fair market value in the case of ISOs granted to employees owning
more than 10% of the Common Stock). The per share exercise price for
nonqualified options granted under the 1996 Stock Option Plan will be in the
discretion of the Committee, but may not be less than the fair market value of a
share of Common Stock on the date of grant.
There are generally no federal income tax consequences upon the grant of an
option under the 1996 Stock Option Plan. Upon exercise of a nonqualified option,
the optionee generally will recognize ordinary income in the amount equal to the
difference between the fair market value of the option shares at the time of
exercise and the exercise price, and the Company is generally entitled to a
corresponding tax deduction. When an optionee sells shares issued upon the
exercise of a non-qualified stock option, the optionee realizes short-term or
long-term capital gain or loss, depending on the length of the holding period,
but the Company is not entitled to any tax deduction in connection with such
sale.
An optionee will not be subject to federal income taxation upon the
exercise of ISOs granted under the 1996 Stock Option Plan, and the Company will
not be entitled to a federal income tax deduction by reason of such exercise. A
sale of shares of Common Stock acquired upon exercise of an ISO that does not
occur within one year after the date of exercise or within two years after the
date of grant of the option generally will result in the recognition of
long-term capital gain or loss by the optionee in an amount equal to the
difference between the amount realized on the sale and the exercise price, and
the Company is not entitled to any tax deduction in connection therewith. If a
sale of shares of Common Stock acquired upon exercise of an ISO occurs within
one year from the date of exercise of the option or within two years from the
date of the option grant (a "disqualifying disposition"), the optionee
generally will recognize ordinary income equal to the lesser of (i) the excess
of the fair market value of the shares on the date of exercise of the options
over the exercise price or (ii) the excess of the amount realized on the sale of
the shares over the exercise price. Any amount realized on a disqualifying
disposition in excess of the amount treated as ordinary income will be long-term
or short-term capital gain, depending upon the length of time the shares were
held. The Company generally will be entitled to a tax deduction on a
disqualifying disposition corresponding to the amount of ordinary income
recognized by the optionee.
The Company anticipates that upon the consummation of the Offering it will
have (i) outstanding options to purchase a total of approximately 760,000 shares
of Common Stock under the 1996 Stock Option Plan and (ii) options to purchase
240,000 additional shares available for grant under the 1996 Stock Option Plan.
On the date the Offering closes, each nonemployee director automatically
will be granted nonqualified stock options ("NSOs") to purchase 10,000 shares
of Common Stock. In addition, on the first business day of the month following
the date on which each annual meeting of the Company's stockholders is held
(each an "Annual Director Award Date"), each nonemployee director
automatically will be granted NSOs to purchase 5,000 shares of Common Stock. Any
person who first becomes a nonemployee director after the date the Offering
closes otherwise than by election at an annual meeting of stockholders
automatically will be granted, on the date of his or her election, NSOs to
purchase 10,000 shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1996, the Company did not have a Compensation Committee,
and executive compensation has been set by the Company's Board of Directors.
37
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The following table provides certain information concerning the issuance of
the outstanding shares of Class B Stock, which the Company issued on October 11,
and December 9, 1996:
DATE OF NUMBER OF PURCHASE PRICE
NAME ISSUANCE SHARES PER SHARE
- ------------------------------------- --------- ----------- --------------
John G. Vondrak, D.D.S............... 10-11-96 1,667,217 $.001
TriCap Funding I, L.L.C.............. 10-11-96 1,685,274 $.001
Robert J. Syverson................... 10-11-96 160,502 $.001
W. Daniel Cook....................... 10-11-96 210,659 $.001
Michael W. Harlan.................... 12- 9-96 94,295 $.001
The number of shares of Class B Stock issued on October 11, 1996 to each of
the founding stockholders shown in the table was determined by negotiations
among those founding stockholders. The number of shares of Class B Stock issued
to Michael W. Harlan on December 9, 1996 was determined by negotiations between
the Board of Directors and Mr. Harlan.
All outstanding shares of Class B Stock are convertible into shares of
Common Stock under certain circumstances. See "Description of Capital
Stock -- Common Stock and Class B Stock." The purchase prices paid for the
foregoing shares of capital stock were the fair market value on the date of
issuance as determined by the Board of Directors.
Apple entered into agreements with Messrs. Syverson, Harlan and Cook
pursuant to which the Company sold to such officers 160,502 shares, 94,295
shares and 210,659 shares of Class B Stock, respectively, at the purchase price
per share set forth in the foregoing table. Each holder of such shares is
entitled to all rights of ownership of Common Stock, including the right to vote
and receive dividends, subject to certain restrictions set forth in a
subscription agreement entered into by the Company and each such holder (each a
"Subscription Agreement"). Each Subscription Agreement provides that, until
the restrictions affecting such shares lapse, the holder may not sell, transfer,
pledge or otherwise dispose of the shares subject to the agreement. Each
Subscription Agreement also provides that, in the event of the termination of
the employment of such holder (other than as a result of termination without
cause, death, disability or a change in control of the Company), the Company
shall have the right to repurchase any shares with respect to which the
restrictions imposed by the Subscription Agreement have not lapsed at the price
per share paid by the executive officer. Each Subscription Agreement further
provides that, in the event of a change in control of the Company (defined to
include, among other events, the acquisition by any person or entity of 25% or
more of the combined voting power of the Company's then outstanding securities),
the executive officer will be entitled to put to the Company all shares
purchased pursuant to such Subscription Agreement that such person then owns
(provided such shares are then subject to resale restrictions under federal
securities laws), and the Company will be required to purchase all such shares,
at a price equal to the fair market value thereof at the time the change in
control occurs.
With respect to Messrs. Syverson and Harlan, the Subscription Agreements
provide that the restrictions will lapse with respect to 50% of each holder's
shares upon consummation of the Offering and that the restrictions on such
holder's remaining shares will lapse on the first anniversary of the
consummation date of the Offering. The Subscription Agreement between Apple and
Mr. Cook provides that the restrictions will lapse immediately upon issuance
with respect to approximately 24% of his shares and that the restrictions on the
remaining shares shall lapse in two equal installments upon consummation of the
Offering and on the first anniversary of the consummation date of the Offering.
In connection with the Acquisition of JGVAOI, Dr. Vondrak will receive
approximately 214,102 shares of Common Stock and $455,000, and will enter into a
Service Agreement providing for service fee payments to the Company. See
"Business -- Service Agreements." Additionally, TriCap has incurred $400,000
of expenses in connection with the Acquisitions and the Offering, and has
advanced to the Company $2.6 million to fund transaction costs in exchange for
the reimbursement of such expenses and the repayment of such advances plus
accrued interest (at the prime rate announced by NationsBank of Texas, N.A. plus
.25%) from the proceeds of the Offering. The Company has used $230,000 of the
funds advanced to it by TriCap to reimburse JGVAOI for a portion of the
organizational expenses of Apple incurred by JGVAOI. The Company intends to
reimburse JGVAOI an additional $70,000 from the proceeds of the Offering to
repay the remainder of such expenses. See "Risk Factors -- Control By Existing
Management and Stockholders; Potential Conflicts of Interest" "Use of
Proceeds."
38
<PAGE>
The following table provides certain information concerning the
Acquisitions:
<TABLE>
<CAPTION>
CONSIDERATION TO BE
RECEIVED
------------------------
ASSETS TO BE NUMBER OF CASH
FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES(2) DIVIDEND
- ---------------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
California
Robert C. Frantz, D.D.S., P.C...... $ 463 39,328 $ 83,572
Bruce S. Harris, D.D.S., Inc....... (39,966) 81,655 173,515
Budd Rubin, D.D.S., M.S., Inc...... (61,435) 97,130 206,401
John Dell Sauter, D.D.S., M.D.S.,
Inc.............................. (8,127) 72,851 154,808
Michael C. Theurer, D.D.S.......... 599,150 238,044 505,843
Ira S. Wiedman, D.D.S.............. (52,743) 62,871 133,600
Ronald H. Roth and Brian W. Wong,
D.D.S., P.C...................... 89,698 40,366 85,778
Western
Orthodontics Exclusively, Ltd...... 194,833 113,059 240,249
Duncan Y. Brown, P.C............... 412,882 173,985 369,716
Roger L. Bumgarner, D.D.S., P.C.... 218,264 76,161 161,841
Thomas K. Chubb, D.D.S............. 156,732 92,935 197,486
Stanley D. Crawford D.D.S., P.C.... (196,089) 85,954 182,652
Andrew Girardot, D.D.S., P.C....... 94,631 108,013 229,526
James H. Jennings, D.D.S., P.A..... 88,505 49,132 104,405
Philip J. Milanovich, D.D.S.,
M.S.............................. 371,163 103,530 220,000
Bowen D. Miles, D.M.D.............. 126,636 98,824 210,000
Mark J. Mills, D.D.S., P.C......... 241,625 151,696 322,353
Donald D. Schmitz, D.D.S., M.S.,
Ltd.............................. 348,498 96,203 204,430
Darrell G. Smith, D.D.S., P.C...... 165,985 95,225 202,351
Central
Robert Dennington, D.D.S.,
M.S.D............................ 48,156 30,362 64,518
Carlos F. Navarro, D.D.S., M.S.D.,
P.C.............................. 172,961 38,400 81,600
Dr. Charles L. Schnibben, Ltd...... 596,764 136,659 290,400
Thomas A. Tiller, Inc., D.D.S.,
Inc.............................. 132,837 70,305 149,397
John G. Vondrak/Apple Orthodontix,
Inc.............................. 642,984 214,102 454,965
East Coast
Western New York Orthodontic Care,
P.C.............................. (292,863) 93,159 197,962
Philip DePasquale, D.D.S........... 20,645 50,619 107,564
Robert S. Fields, D.M.D., P.C...... 133,166 102,325 217,440
Paul H. Rigali, D.D.S., P.C........ 49,315 137,392 291,957
Carl P. Roy, D.D.S., M.S., P.C..... 297,172 122,015 259,280
Ronald N. Speigal, D.M.D., Inc..... 27,040 50,862 108,082
Jack D. Utley Jr., D.M.D., P.C..... 119,537 102,472 217,752
-------------- --------- ------------
Total......................... $4,698,419 3,025,634 $ 6,429,443
============== ========= ============
</TABLE>
- ------------
(1) Assets to be contributed reflects the historical book value of the assets of
each practice, including their patient receivable balance, net of
prepayments. The nonmonetary assets are reflected at historical cost in
accordance with SAB No. 48. All monetary assets are recorded at fair value,
which is approximated by the historical costs recorded by the practices.
(2) Assumes an initial offering price of $8.50 per share.
AGREEMENTS WITH TRICAP
TriCap Partners, an affiliate of TriCap co-owned by Mr. Sherrill, is the
exclusive financial advisor to Apple pursuant to a consulting agreement with an
initial term extending through the date of consummation of the first public
offering of Common Stock (or a security convertible into or exchangeable for
Common Stock) by the
39
<PAGE>
Company following the Offering. The consulting agreement provides for, among
other things, the payment by Apple to TriCap Partners of (i) $500,000 upon
consummation of the Offering and (ii) a warrant to purchase approximately
324,280 shares of Common Stock with an exercise price per share equal to the
price to public per share set forth on the cover page of this Prospectus, which
warrant provides that the number of underlying shares will be determined based
upon the initial public offering price per share. In connection with the
warrant, the Company granted TriCap Partners certain demand and piggyback
registration rights. Under the terms of the consulting agreement, TriCap
Partners will provide financial advisory services to the Company in connection
with the evaluation of the businesses and operations of the Founding Affiliated
Practices, the selection of investment banking, legal, financial and other
professionals, and the timing, structure and pricing of the Offering. See
"Shares Eligible for Future Sale."
Pursuant to a funding agreement between TriCap and Apple, TriCap has
advanced to Apple approximately $2.6 million to fund transaction costs in
connection with the Acquisitions and the Offering. These advances, which are
evidenced by the Convertible Notes, together with expenses incurred by TriCap on
behalf of the Company estimated at $400,000, will be repaid with proceeds from
the Offering. The funding agreement terminates pursuant to its terms upon
completion of the Offering. See "Use of Proceeds." In connection with this
agreement, Apple granted TriCap and Dr. Vondrak certain piggyback registration
rights. See "Shares Eligible For Future Sale."
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to incur any further indebtedness to, or make any loans to, any of
its executive officers, directors or other affiliates.
40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of April 1, 1997, information respecting the
then "beneficial owners" (as defined by the Commission) of more than 5% of the
Class B Stock:
SHARES BENEFICIALLY OWNED
-------------------------
PERCENT
NAME NUMBER OF CLASS
- ------------------------------------- ----------- --------
TriCap Funding I, L.L.C. ............ 1,685,274 41.0%
John G. Vondrak, D.D.S. ............. 1,586,966 38.6%
W. Daniel Cook ...................... 210,659 5.1%
The following table shows, immediately after giving effect to the closing
of the Acquisitions and the Offering, the then "beneficial ownership" of the
Common Stock and Class B Stock of (i) TriCap; (ii) each director and person
nominated to become a director on closing of the Offering; (iii) each executive
officer; and (iv) all executive officers and directors of the Company as a
group. The table assumes none of such persons intend to acquire shares in the
Offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
AFTER OFFERING(1)
---------------------------------------------------
COMMON PERCENT OF CLASS B PERCENT OF
NAME STOCK CLASS STOCK CLASS
- ------------------------------------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TriCap Funding I, L.L.C. ............ -- -- 1,685,274 41.0%
One West Loop South, Suite 100
Houston, Texas 77027
John G. Vondrak, D.D.S............... 247,852(2)(3) 4.6% 1,586,966 38.6%
W. Daniel Cook....................... 17,500(3) * 210,659 5.1%
Robert J. Syverson................... 25,000(3) * 160,502 3.9%
Michael W. Harlan.................... 22,500(3) * 94,295 2.3%
H. Steven Walton..................... 68,398(3) 1.3%
William W. Sherrill.................. 327,405(3)(4) 5.7% -- --
All executive officers and directors
as a group
(6 persons)........................ 708,655(3)(4) 12.1% 2,052,422 50.0%
</TABLE>
- ------------
* less than 1%.
(1) Shares shown in the above table do not include shares that could be acquired
upon exercise of currently outstanding stock options which do not vest
within 60 days of April 1, 1997.
(2) Includes 214,102 shares issued in connection with the acquisition of JGVAOI.
(3) Includes shares that may be acquired pursuant to outstanding options within
60 days of April 1, 1997: 33,750 shares in the case of Dr. Vondrak; 17,500
shares in the case of Mr. Cook; 25,000 shares in the case of Mr. Syverson;
22,500 shares in the case of Mr. Harlan; 3,125 shares in the case of Mr.
Sherrill; 68,398 shares in the case of Mr. Walton; and 170,273 shares in the
case of all executive officers and directors as a group.
(4) Includes 324,280 shares that may be acquired pursuant to an outstanding
warrant within 60 days of April 1, 1997 held of record by TriCap Partners,
which Mr. Sherrill co-owns.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Class A Common Stock, par value $0.001 per share, 4,106,852 shares of Class B
Common Stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"). At February 28,
1997, 4,106,852 shares of Class B Stock were issued and outstanding and no
shares of Common Stock or preferred stock of the Company were issued and
outstanding. The following summary is qualified in its entirety by reference to
the Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK AND CLASS B COMMON STOCK
Upon consummation of the Offering, holders of the Class B Stock will have
the ability to elect as a class one member of the Board of Directors and the
holders of the Common Stock will have the ability to elect as a class all other
members of the Board of Directors. In the event of a change in the number of
directors, holders of Class A Common Stock have the ability to elect at least
80% of the Board of Directors (rounded up to the nearest whole number) elected
by the holders of Common Stock and, subject to the rights of the holders of any
series of preferred stock, the holders of the Class B Common Stock will have the
right to elect the remaining directors. The Common Stock and Class B Stock
possess ordinary voting rights and vote together as a single class in respect of
all other corporate matters, and, in connection therewith, holders of shares of
Common Stock are entitled to one vote per share and holders of shares of Class B
Stock are entitled to three-tenths ( 3/10ths) of a vote per share. The Common
Stock and Class B Stock afford no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock and Class B Stock carry no
preemptive rights, are not convertible, redeemable, assessable or entitled to
the benefits of any sinking fund. The holders of Common Stock and Class B Stock
are entitled to dividends in such amounts and at such times as may be declared
by the Board of Directors out of funds legally available therefor. The Company
intends that, after completion of the Offering, all future dividends, if any,
declared on, or distributions with respect to, its shares of Common Stock and
Class B Stock will be paid on a pro rata basis to the holders of such shares.
See "Dividend Policy" for information regarding the Company's dividend policy.
Directors may be removed, with or without cause, by the holders of the
class or classes of stock that elected them. Directors may be removed by the
Board of Directors only for cause. Vacancies in a directorship may be filled by
the vote of the class or classes of shares that had previously filled that
vacancy, or by the remaining directors or director elected by such class or
classes; however, if there are no such directors, the vacancy may be filled by
the other directors.
Each share of Class B Stock will automatically convert to Common Stock on a
share-for-share basis (i) in the event of a disposition of such share of Class B
Stock by the holder thereof (excluding dispositions to such holder's
affiliates), (ii) in the event any person not affiliated with Apple acquires
beneficial ownership of 15% or more of the outstanding shares of capital stock
of the Company, (iii) in the event any person not affiliated with Apple offers
to acquire 15% or more of the outstanding shares of capital stock of the
Company, (iv) in the event the holder of such share elects to so convert at any
time after the second anniversary of the date of this Prospectus, (v) on the
fifth anniversary of the date of this Prospectus or (vi) in the event the
holders of a majority of the outstanding shares of Common Stock approve such
conversion. In addition, the Company may elect to convert any outstanding shares
of Class B Stock into shares of Common Stock in the event 80% or more of the
outstanding shares of Class B Stock as of the date of this Prospectus have
previously been converted into shares of Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms
42
<PAGE>
of redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the holders of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the time such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not provide
employees with the rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (iii)
following the transaction in which such person became an interested stockholder,
the business combination was approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person's
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Certificate of Incorporation
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of
43
<PAGE>
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Certificate of Incorporation and Bylaws provide that special meetings of the
stockholders can be called only by the Chairman of the Board, the President or a
majority of the Board of Directors.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders' meeting following the date the acquiror obtains the
controlling interest. See "Management -- Directors, Executive Officers and Key
Employees."
The Certificate of Incorporation provides that the number of directors
shall be as determined by the Board of Directors from time to time, but shall
not be less than three. It also provides that directors may be removed only for
cause, and then only by the affirmative vote of the holders of at least a
majority of all outstanding voting stock entitled to vote. This provision, in
conjunction with the provisions of the Certificate of Incorporation authorizing
the Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election to
the Board of Directors. Generally, such advance notice provisions provide that
written notice must be given to the Secretary of the Company by a stockholder
(i) in the event of business to be brought by a stockholder before an annual
meeting, not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date of
the annual meeting is different by more than specified amounts from the
anniversary date), and (ii) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (a) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of stockholders
(with certain exceptions if the date of the annual meeting is different by more
than specified amounts from the anniversary date), and (b) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, not later than the close of business on the seventh day following the
day on which notice of the date of the special meeting was mailed to
stockholders or public disclosure of the date of the special meeting was made,
whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are included as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and the Offering, the Company will
have outstanding (i) 5,375,634 shares of Common Stock (5,728,134 if the
Underwriters' over-allotment option is exercised in full) of which the 2,350,000
shares sold in the Offering (2,702,500 if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act, except for those held by
"affiliates" (as defined in the Securities Act) of the Company, which shares
will be subject to the resale limitations of Rule 144 under the Securities Act,
and (ii) 4,106,852 shares of Class B Stock. The remaining 3,025,634 shares of
Common Stock and all of the outstanding shares of Class B Stock are deemed
"restricted securities" under Rule 144 in that they were originally issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.
In general, under Rule 144 as amended effective April 29, 1997, if a
minimum of one year has elapsed since the later of the date of acquisition of
restricted securities from the issuer or from an affiliate of the issuer, the
acquirer or subsequent holder would be entitled to sell within any three-month
period a number of those shares that does not exceed the greater of one percent
of the number of shares of such class of stock then outstanding or the average
weekly trading volume of the shares of such class of stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the issuer. In addition, if a period of at least two years has elapsed since the
later of the date of acquisition of restricted securities from the issuer or
from any affiliate of the issuer, and the acquirer or subsequent holder thereof
is deemed not to have been an affiliate of the issuer of such restricted
securities at any time during the 90 days preceding a sale, such person would be
entitled to sell such restricted securities under Rule 144(k) without regard to
the requirements described above. Rule 144 does not require the same person to
have held the securities for the applicable periods. The foregoing summary of
Rule 144 is not intended to be a complete description thereof. The Commission
has proposed certain amendments to Rule 144 that would, among other things,
eliminate the manner of sale requirements and revise the notice provisions of
that rule. The SEC has also solicited comments on other possible changes to Rule
144, including possible revisions to the one- and two-year holding periods and
the volume limitations referred to above.
As of February 28, 1997, options to purchase an aggregate of approximately
760,000 shares of Common Stock were outstanding under the Company's 1996 Stock
Option Plan. See " Management -- 1996 Stock Option Plan." In general, pursuant
to Rule 701 under the Securities Act, any employee, officer or director of, or
consultant to, the Company who purchased his or her shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701, which permit non-affiliates to sell such shares without compliance
with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permit affiliates to sell such shares without
compliance with the holding period provisions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. A total of 20,000 shares
of Common Stock will be eligible for resale pursuant to Rule 701 (upon exercise
of options) 90 days following the date of this Prospectus (although the holders
of those shares have agreed not to offer or sell any of those shares during the
180-Day Lockup Period). In addition, the Company intends to file a registration
statement covering the 980,000 additional shares issuable upon exercise of stock
options that may be granted in the future under the 1996 Stock Option Plan, in
which case such shares of Common Stock generally will be freely tradable by
non-affiliates in the public market without restriction under the Securities
Act.
The Company, its executive officers and directors, TriCap and the persons
acquiring shares of Common Stock in connection with the Acquisitions have agreed
not to offer, sell, contract to sell, grant any option or other right for the
sale of, or otherwise dispose of any shares of Common Stock or any securities,
indebtedness or other rights exercisable for or convertible or exchangeable into
Common Stock owned or acquired in the future in any manner prior to the
expiration of 180 days after the date of this Prospectus without the prior
written consent of Bear, Stearns & Co. Inc., except that the Company may issue,
subject to certain conditions, Common Stock in connection with acquisitions and
may grant Awards (or Common Stock upon exercise of Awards) under the 1996
45
<PAGE>
Stock Option Plan. In addition, the holders of the shares of Common Stock
acquired in connection with the Acquisitions have agreed with the Company that
they generally will not sell, transfer or otherwise dispose of any of their
shares for one year following the closing of the Offering. Substantially all the
outstanding shares of Class B Stock will become eligible for resale pursuant to
Rule 144 in October 1997.
In connection with the Acquisitions, the Company will enter into a
registration rights agreement with former stockholders of the Founding
Affiliated Practices (the "Registration Rights Agreement"), which will provide
certain registration rights with respect to the Common Stock issued to such
stockholders in the Acquisitions. The Registration Rights Agreement will provide
the holders of Common Stock subject to the agreement with the right in the event
the Company proposes to register under the Securities Act any Common Stock for
its own account or for the account of others at any time through November 2001,
subject to certain exceptions, to require the Company to include shares owned by
them in the registration. In addition, pursuant to separate registration rights
agreements with TriCap, Dr. Vondrak and TriCap Partners, TriCap, Dr. Vondrak and
TriCap Partners have the right, in the event the Company proposes to register
under the Securities Act any Common Stock for its own account or for the account
of others at any time through November 2001, subject to certain exceptions, to
require the Company to include shares owned by them in the registration.
Furthermore, the registration rights agreement to which TriCap Partners is a
party provides for a single demand registration right pursuant to which Apple
will file a registration statement under the Securities Act to register the sale
of the shares issuable to TriCap Partners on exercise of the warrant described
under "Certain Transactions -- Agreements with TriCap." The demand request may
be made at any time before May 31, 2002, subject to certain conditions and
limitations.
In the case of each registration rights agreement described above, the
Company is generally required to pay the costs associated with such an offering
other than underwriting discounts and commissions and transfer taxes
attributable to the shares sold on behalf of the selling stockholders. Each
registration rights agreement provides that the number of shares of Common Stock
that must be registered on behalf of the selling stockholders is subject to
limitation if the managing underwriter determines that market conditions require
a limitation. Under each agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the registration rights agreement.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, or otherwise, because such amount will
depend on the trading volume in, and market price for, the Common Stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock of the Company. See
"Underwriting."
The Company intends to register 2,000,000 shares of Common Stock under the
Securities Act during the second quarter of 1997 for use in connection with
future acquisitions. These shares generally will be freely tradable after their
issuance by persons not affiliated with the Company unless the Company
contractually restricts their sale. The Company anticipates that the agreements
entered into in connection with its future acquisitions will contractually
restrict the resale of all or a portion of the shares issued in those
transactions for varying periods of time.
46
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company, Bear, Stearns & Co. Inc. and Equitable Securities Corporation as the
Representatives of the Underwriters, each of the Underwriters named below has
severally agreed to purchase from the Company, and the Company has agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite its name below.
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- -----------
Bear, Stearns & Co. Inc. ...............
Equitable Securities Corporation........
-----------
Total......................... 2,350,000
===========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per share
of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriters. The Common Stock will be listed on the
American Stock Exchange.
The Underwriters have been granted a 30-day over-allotment option to
purchase up to 352,500 additional shares of Common Stock of the Company
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the 2,350,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.
The officers and directors of the Company and certain holders of the Common
Stock have agreed not to offer, sell, transfer, assign or otherwise dispose of,
any shares of Common Stock owned by them for a period of 180 days after the date
of the final Prospectus relating to the Offering, without the prior written
consent of Bear, Stearns & Co. Inc.
The Company has agreed that it will not issue, sell or grant options to
purchase or otherwise dispose of any shares of its Common Stock or securities
convertible into or exchangeable for its Common Stock, except, subject to
certain conditions, with respect to acquisitions or pursuant to the 1996 Stock
Option Plan, for a period of 180 days after the date of the final prospectus
relating to the Offering without the prior written consent of Bear, Stearns &
Co. Inc.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain civil liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.
47
<PAGE>
Prior to the Offering, there was no public market for the Common Stock of
the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Representatives. The factors considered in making such determination will
include the prevailing market conditions, the financial condition and operating
history of the Company and the Founding Affiliated Practices, their prospects
and the prospects for the orthodontic services industry in general, the
management of the Company and the market price of securities for companies in
businesses similar to that of the Company. There can be no assurance, however,
that an active or orderly trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial offering price.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilizing transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson & Walker, L.L.P., Houston, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The financial statements of Apple Orthodontix, Inc. as of December 31, 1996
and for the period from inception, July 15, 1996, through December 31, 1996
included in this Prospectus and appearing elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, which is
included herein in reliance upon the authority of said firm as experts in giving
said report.
48
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describe the material provisions of such
document and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. All of these documents may be inspected
without charge at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies can also be obtained from the Commission
at prescribed rates. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AUDITED FINANCIAL STATEMENTS OF APPLE
ORTHODONTIX, INC.
Report of Independent Public
Accountants.................... F-2
Balance Sheet -- December 31,
1996........................... F-3
Statement of Operations For the
Period From Inception, July 15,
1996 Through
December 31, 1996............. F-4
Statement of Changes in Common
Stock subject to a Put Option
and Stockholders' Equity
(Deficit) For the Period From
Inception,
July 15, 1996 Through December
31, 1996....................... F-5
Statement of Cash Flows For the
Period From Inception, July 15,
1996 Through
December 31, 1996............. F-6
Notes to Financial Statements... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Apple Orthodontix, Inc.:
We have audited the accompanying balance sheet of Apple Orthodontix, Inc.,
a Delaware corporation, as of December 31, 1996, and the related statements of
operations, changes in common stock subject to a put option and stockholders'
equity (deficit) and cash flows for the period from inception, July 15, 1996,
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Apple Orthodontix, Inc., as
of December 31, 1996, and the results of its operations and its cash flows for
the period from inception, July 15, 1996, through December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 1997
(except with respect to the stock split
discussed in Note 2, as to
which the date is April 24, 1997)
F-2
<PAGE>
APPLE ORTHODONTIX, INC.
BALANCE SHEET -- DECEMBER 31, 1996
ASSETS
Cash and cash equivalents............... $ 21,254
Long-term assets:
Deferred issuance costs............ 1,395,350
Organization costs, net of
accumulated amortization of
$4,510............................ 44,687
------------
Total long-term assets........ 1,440,037
------------
Total assets.................. $ 1,461,291
============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... $ 1,439,565
Accrued bonuses.................... 325,000
Other accrued liabilities.......... 35,000
Amounts due to a founding
affiliated practice............... 30,444
Amounts due to venture capital
investors......................... 515,000
------------
Total current liabilities..... 2,345,009
Class B Common Stock subject to a put
option, $.001 par value, 724,267
shares issued and outstanding......... 145
Stockholders' equity (deficit):
Class A Common Stock, $.001 par
value, no shares authorized,
issued and outstanding............ --
Class B Common Stock, $.001 par
value, 4,106,852 shares
authorized;
3,382,585 shares issued and
outstanding....................... 3,383
Retained deficit................... (887,246)
------------
Total stockholders' equity
(deficit).................... (883,863)
------------
Total liabilities and
stockholders' equity
(deficit).................... $ 1,461,291
============
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996
REVENUES............................. $ --
COSTS AND EXPENSES:
Salaries and benefits........... 627,476
Rent............................ 19,676
Amortization of organization
costs........................... 4,510
General and administrative...... 232,232
------------
Total costs and expenses... 883,894
PROVISION FOR INCOME TAXES........... --
------------
NET LOSS............................. $ (883,894)
============
NET LOSS PER SHARE................... $ (0.21)
============
NUMBER OF SHARES USED IN CALCULATING
NET LOSS PER SHARE................... 4,119,793
============
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF CHANGES IN COMMON STOCK
SUBJECT TO A PUT OPTION AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
SUBJECT TO A
PUT OPTION COMMON STOCK
------------------- --------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT DEFICIT
--------- ------ ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 15, 1996............... -- $-- -- $ -- $ --
Issuance of stock............... 724,267 145 3,382,585 3,383 (3,350)
Net loss........................ -- -- -- -- (883,894)
--------- ------ ----------- ------ ------------
BALANCE, December 31, 1996........... 724,267 $ 145 3,382,585 $3,383 $ (887,246)
========= ====== =========== ====== ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
APPLE ORTHODONTIX, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION, JULY 15, 1996
THROUGH DECEMBER 31, 1996
CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss........................ $ (883,894)
Amortization of organization
costs........................... 4,510
Increase in accounts payable and
accrued liabilities not related
to issuance costs............... 404,215
------------
Net cash used in operating
activities................ (475,169)
------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Cash paid for organization
costs.......................... (49,197)
Advances from a related party... 515,000
Advances from a founding
practice........................ 283,744
Repayment of advances from a
founding practice.............. (253,300)
Proceeds from issuance of common
stock.......................... 176
------------
Net cash provided by
financing activities...... 496,423
------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... $ 21,254
============
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Apple Orthodontix, Inc. (Apple or the Company), was established as a
Delaware corporation on
July 15, 1996, for the purpose of creating an orthodontic practice management
company which will own the assets of and provide management services to
orthodontic practices (see Note 6). The Company's operations to date have
consisted primarily of seeking affiliations with orthodontists, negotiating to
acquire the assets of those professionals' practices and negotiating agreements
to provide management services to those practices (Acquisitions). Apple plans to
complete an initial public offering of its Class A common stock and
simultaneously exchange cash and shares of its Class A common stock for selected
assets and liabilities associated with 31 orthodontic practices (the Founding
Affiliated Practices). The completion of the Acquisitions, public offering and
entry by Apple into service agreements with the owners of the orthodontic
practices will mark the beginning of Apple's operations. The financial
statements have been prepared on the basis that the proposed transactions will
occur although no assurance can be made that the proposed transaction will be
completed. For further discussion of the various risks associated with Apple's
operations and the proposed transaction, including the absence of a combined
operating history, reliance on Affiliated Practices and orthodontists, the need
for additional financing, government regulation, dependence on key personnel,
competition, and other risks, please refer to the discussion of risk factors in
the Company's registration statement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFERRED ISSUANCE COSTS
Salaries and general and administrative expenses and other internal costs
associated with seeking and negotiating with orthodontists to enter into the
transaction have been expensed. Various external costs resulting from the
provision of legal, accounting and other professional services and other costs
incurred for the transactions are a requirement of the Offering and accordingly
have been recorded as deferred issuance costs. All deferred issuance costs will
be charged against the proceeds of the initial public offering upon its
successful completion. As of December 31, 1996, no deferred issuance costs
associated with the Offering have been paid.
ORGANIZATION COSTS
Organization costs incurred in the formation of the Company are amortized
on a straight-line basis over a five-year period.
STOCKHOLDERS' EQUITY (DEFICIT)
On October 11, 1996, 3,884,155 shares of Class B common stock were issued
at a total price of $9.68. Management believes that the consideration received
for those shares represented the fair value of the shares at that date. On
December 9, 1996, 222,697 additional shares were issued in exchange for $166 of
consideration. Management believes that the consideration received for those
shares represented the fair value of the shares at that date. The shares issued
through December 31, 1996 have been restated to reflect the effect of a
4,013-for-one stock split approved on April 24, 1997. After considering the
effects of the stock split, the effective per share consideration paid was
$.0000025 per share on October 11, 1996 and $.00075 per share on December 9,
1996. In conjunction with the stock split approved on April 24, 1997, additional
amounts were contributed to bring the aggregate purchase price per share up to
the par value of $.001 per share. The Class B common stock will be entitled to a
three-tenths ( 3/10ths) of a vote per share. The Class B common stock
automatically converts to one vote per share in the event of the disposition of
the stock by the stockholder (excluding dispositions to the holder's
affiliates), any person offers to or acquires 15% or more of the outstanding
capital stock of the Company, any person acquires beneficial ownership of 15% or
more of the outstanding shares of capital stock of the Company, the stockholder
elects to convert at any time after the second anniversary of the effective date
of this Offering, the holders of that number of
F-7
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shares of Class A common stock and Class B common stock, voting together as a
single class, with a majority of the outstanding voting power approve
conversion, or on the fifth anniversary of the effective date of the Offering.
In the event that 80 percent or more of the currently outstanding shares of
Class B common stock have been converted into shares of Class A common stock,
the Company may elect to convert the remaining outstanding shares of Class B
common shares into shares of Class A common stock. The Class A common stock to
be issued to the Founding Affiliated Practices and in the Offering will be
entitled to one vote per share.
Approximately 724,267 of the issued and outstanding shares are subject to
subscription agreements that include a provision that in the event of a change
in control of the Company, the executive officers and other stockholders holding
the subject shares will be entitled to put to the Company all shares purchased
pursuant to such subscription agreements that such person then owns, and the
Company will be required to purchase all such shares, at a price equal to the
fair market value thereof at the time the change in control occurs.
The shares used in calculating net loss per share include all shares of
capital stock outstanding as of February 28, 1997 and the additional shares that
would be outstanding if all options that were issued prior to the Offering were
exercised and the proceeds used to repurchase shares at an assumed offering
price of $8.50 per share.
STOCK OPTION PLAN
In December 1996 the board of directors of the Company adopted the 1996
Stock Option Plan (Plan). Employees, non-employee directors and advisors are
eligible to receive awards under the Plan; only employees of the Company are
eligible to receive incentive stock options. The aggregate number of options to
purchase shares of common stock that may granted under the Plan is the greater
of 1,000,000 or 12% of the number of shares of Class A common stock outstanding
on the last day of the preceding calendar quarter. As of December 31, 1996, no
options had been granted under the Plan. The Company anticipates that upon or
shortly after the consummation of its Offering that it will grant options to
purchase approximately 760,000 shares of common stock under the Plan. All of
these options will be at the Offering price except for 20,000 options that were
granted in January 1997 at $3.00 per option, which equaled the fair value of the
common stock of the Company at that date. The Company will account for options
issued to employees and non-employee directors under the Plan in accordance with
APB Opinion No. 25, and accordingly no compensation cost will be recognized. The
Company will provide the pro forma disclosure of net earnings per share in the
notes to the financial statements as if the fair value-based method of
accounting had been applied to awards as required by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."
INCOME TAXES
As reflected in the accompanying statement of operations, the Company
incurred a loss from operations during the period from inception, July 15, 1996,
through December 31, 1996. Due to the limited operations of the Company since
its inception and the pending Offering, a valuation allowance has been recorded
to fully reserve for the deferred tax benefits generated by these net operating
losses. There is no significant difference in the tax and book bases of the
Company's assets or liabilities that would give rise to deferred tax balances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
F-8
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. FINANCING PROVIDED BY VENTURE CAPITAL INVESTORS:
On November 14, 1996, the Company entered into an agreement with TriCap
Funding I, L.L.C. (TriCap), whereby TriCap agreed to provide $3,000,000 to
finance costs related to the Offering. As of December 31, 1996, the Company had
borrowed $515,000 under this agreement. The $3,000,000, to the extent expended,
will be repaid out of proceeds from the Offering, including interest at a rate
of prime plus .25 percent. The Company also entered into an agreement on such
date with TriCap Partners, L.L.C. (TriCap Partners) that extends through the
date of the consummation of the first public offering of Common Stock (or a
security convertible or exchangeable for Common Stock) by the Company following
the Offering. This agreement provides for (a) the payment by Apple to TriCap
Partners of approximately $500,000 upon consummation of the Offering and (b) the
issuance to TriCap Partners of a warrant with a value of $1,700,000 to purchase
approximately 324,280 shares of Common Stock, assuming an exercise price per
share of $8.50, to be adjusted based on the actual initial offering price to
public per share. The determination of number of shares to be equal to the
$1,700,000 value of the warrant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: (i) expected
dividend yield -- 0.0%; (ii) expected stock price volatility -- 67.5%; (iii)
risk-free interest -- 6.2%; and (iv) expected life of the warrant -- 5 years.
4. RELATED PARTY:
The practice of a founding stockholder of the Company, John G. Vondrak,
D.D.S., has paid for certain costs and expenses on behalf of the Company. Such
payments, net of reimbursement in conjunction with the financing, have been
reflected as amounts due to a Founding Affiliated Practice in the accompanying
balance sheet and will be repaid with proceeds from the planned Offering.
5. LITIGATION:
On December 10, 1996, Orthodontic Centers of America (OCA) filed a
complaint against Apple, Dr. Vondrak and his practice, alleging misappropriation
of trade secrets and breach of a confidentiality agreement executed by Dr.
Vondrak with OCA. The Company plans to vigorously defend itself in this matter
and does not believe that the results of these proceedings will have a material
adverse effect on the Company's operating results or financial position.
6. PLANNED ACQUISITIONS OF FOUNDING AFFILIATED PRACTICES:
Apple plans to complete, through a series of mergers and asset transfers,
the acquisition of certain assets and assumption of certain liabilities of the
Founding Affiliated Practices (the Acquisitions) concurrently with an initial
public offering of shares of its Class A common stock. The Founding Affiliated
Practices will receive Class A common stock and cash as consideration in the
Acquisitions. In connection with the Acquisitions, the selling orthodontists
will create new professional corporations, professional associations or other
entities (collectively, the New PCs) that will enter into 20-year service
agreements with Apple. Additionally, those orthodontists will enter into
employment and noncompete agreements with the New PCs.
The Company will not employ orthodontists or control the practice of
orthodontics by the orthodontists employed by the New PCs. As Apple will not be
acquiring the future patient revenues earned by the New PCs, the Acquisitions
are not deemed to be business combinations. In accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin (SAB) No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders," the transferred nonmonetary
assets and assumed liabilities will be accounted for at the historical cost
basis of the Founding Affiliated Practices. Each of the Founding Affiliated
Practices is a promoter of the Offering. Any monetary assets included in the
Acquisitions will be recorded at fair value. The resulting value of the net
assets acquired by Apple will be recorded as the value of the
F-9
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock consideration tendered. Cash consideration paid to selling orthodontists
in conjunction with the Acquisitions will be reflected as a dividend paid by
Apple.
The selling orthodontists will generally retain the long-term debt
obligations of their respective practices. Capital lease obligations will be
assumed by the Company. In certain cases, Apple has agreed to refinance debt
retained by the selling orthodontists.
The combined detail of the Founding Affiliated Practices' assets to be
transferred and liabilities to be assumed is as follows:
COMBINED PRESENTATION OF ASSETS TO BE TRANSFERRED AND LIABILITIES ASSUMED FROM
THE
FOUNDING AFFILIATED PRACTICES AS OF DECEMBER 31, 1996
Cash and cash equivalents............ $ 1,177,000
Patient receivables, net of
allowances and patient
prepayments........................ 866,000
Prepaid expenses and other current
assets............................. 137,000
Property, equipment and improvements,
net................................ 2,087,000
Intangible and other long-term
assets, net........................ 431,000
------------
Assets transferred................... 4,698,000
Accounts payable and accrued
liabilities........................ (1,627,000)
Current portion of capital lease
obligations........................ (121,000)
Long-term portion of capital lease
obligations........................ (312,000)
------------
Assets transferred, net of
liabilities assumed................ $ 2,638,000
============
The management service revenues that will be earned by Apple subsequent to
the Acquisitions and execution of the service agreements are based on various
arrangements. In general, the resulting fee will be substantially based on the
patient revenues and cash collections of the New PCs and the operating expenses
assumed by Apple. Apple's standard form of service agreement (the Standard
Contract) will be applied to all practices operating in locations where it is
not prohibited by law or governmental regulation. In those instances where the
standard contract may not be permitted, an alternative form of agreement (the
Alternative Contract) will be used. In addition, with respect to two of the New
PCs, the service fees are based on flat fees that are subject to adjustment on
an annual basis.
COMBINED OPERATING DATA OF THE FOUNDING AFFILIATED PRACTICES FOR THE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PATIENT REVENUES CASH COLLECTIONS OPERATING EXPENSES
---------------- ---------------- ------------------
<S> <C> <C> <C>
Practices participating under the
Standard Contract.................. $ 17,490,000 $ 17,521,000 $ 10,809,000
Practices participating under the
Alternative Contract............... 5,358,000 5,519,000 2,935,000
Practices participating under flat
fee agreements..................... 2,209,000 2,365,000 1,226,000
---------------- ---------------- ------------------
Totals for Founding Affiliated
Practices.......................... $ 25,057,000 $ 25,405,000 $ 14,970,000
================ ================ ==================
</TABLE>
Patient revenues are derived from orthodontic care provided to patients
under contract terms agreed to by the patient or other responsible parties. The
contracts vary by practice and by patient, and service often extends over an
eighteen month to six-year period. Revenue is recognized based on the estimated
costs incurred as compared to the total estimated treatment cost, with
approximately 24 percent being recognized at the time of initial treatment which
is related to the costs incurred at the time of initial treatment. The balance
of the contract revenue is realized pro rata each month over the remaining
contract period. The 24 percent estimated cost at the initial treatment date is
consistent with industry standards and includes the estimated costs of
diagnosis, treatment plan development, initial treatment by orthodontic
personnel, orthodontic supplies and associated administrative services.
F-10
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The difference in the timing of the recognition of patient revenues and
cash collections results in (i) unbilled receivables in instances where
recognition of revenues precedes the patient's payment plan and (ii) patient
prepayments when payments are made on a more accelerated basis than revenues are
earned. The following table presents the combined uncollected patient
receivables unbilled patient receivables and patient prepayments of the Founding
Affiliated Practices. These amounts are not receivables of the Company, but the
net position of these receivables will be acquired as part of the Acquisitions
and in future periods each New PC will provide the Company with a security
interest in the receivables of the New PC.
COMBINED PATIENT RECEIVABLES, NET, OF THE FOUNDING AFFILIATED PRACTICES AS OF
DECEMBER 31, 1996
Patient receivables, net of
allowances of $631,000............. $ 918,000
Unbilled patient receivables, net of
allowances of $70,000.............. 3,361,000
Patient prepayments.................. (3,413,000)
--------------
Patient receivables net of
allowances and prepayments.... $ 866,000
==============
Subsequent to the Acquisitions, the operating expenses of the Founding
Affiliated Practices will be the responsibility of Apple. The Company will have
discretion to control the level of those expenses in conjunction with providing
the related services to the New PCs. The combined historical expenses of the
Founding Affiliated Practices for the year ended December 31, 1996 that will be
assumed by the Company in the future were:
COMBINED DETAIL OF THE FOUNDING AFFILIATED PRACTICES' EXPENSES FOR THE YEAR
ENDED
DECEMBER 31, 1996
Salaries, wages and benefits of
employees, excluding the
orthodontists...................... $ 6,381,000
Orthodontic supplies................. 2,548,000
Rent................................. 1,923,000
Advertising and marketing............ 438,000
General and administrative
expenses........................... 3,680,000
--------------
Total operating expenses........ 14,970,000
Depreciation and amortization on
acquired assets.................... 864,000
--------------
Total expenses to be assumed.... $ 15,834,000
==============
The combined historical financial information of the Founding Affiliated
Practices presented herein is not related to the financial position or results
of operations of Apple. This information is presented solely for the purpose of
providing disclosures to potential investors regarding the group of entities
with which Apple will be contracting to provide future services due to the
significant relationships between Apple and the Founding Affiliated Practices.
The Founding Affiliated Practices' financial information is presented on a
combined basis to assist in an understanding of their relationship to the pro
forma financial statements included elsewhere in the Company's registration
statement and due to the fact that their service agreements with the Company
will be signed contingent on the single common event of the completion of the
Offering. The Founding Affiliated Practices were not operated under common
control or management during the fiscal year ended December 31, 1996.
UNAUDITED PRO FORMA MANAGEMENT SERVICES FEES
Except with respect to service agreements providing for the payment of flat
fees, the management service fees earned by the Company will be in accordance
with two general types of service agreements_-- the standard form of the service
agreement (Standard Contract) and the alternative form of the service agreement
(the Alternative Contract). The determination of which service agreement will be
used for a
F-11
<PAGE>
APPLE ORTHODONTIX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
practice has been based on (i) the historical arrangements utilized by medical
and dental professionals in that jurisdiction to contract for management
services and (ii) the laws relating to the corporate practice of dentistry and
fee splitting in the state or states in which that practice operates. The
Standard Contract calls for a calculation of the monthly service fee based on
the total revenues earned by the New PCs, which is defined by the agreement to
represent 24% of the total contract value in the initial month of a patient's
treatment with the remainder of the contract balance earned evenly over the
balance of the contract term. From total revenues, the orthodontists retain 31.5
percent of the New PC's cash collections. There are adjustments to the service
fee designed to both provide incentives for the orthodontists to provide
efficient patient treatment and to increase the number of patients treated, as
well as to ensure that the orthodontists retain a minimum amount for payment of
their compensation from their respective New PCs on a monthly basis. The
Alternative Contract is currently offered in California. It is a cost plus fee
arrangement, whereby the service fee includes the reimbursement of defined
expenses incurred by Apple in the course of providing services to the New PC
plus 13.5 percent of revenues. The Company believes the fees to be generated by
each of these formulas will be reflective of the fair market value of the
services provided and will be comparable to the fees earned by other management
service companies in the respective jurisdictions where these arrangements will
exist. In addition, with respect to two of the New PCs, the service fees are
based on flat fees that are subject to adjustment on an annual basis.
The pro forma management service fee for practices that have agreed to the
Standard Contract is based on the accrual basis revenues of the Founding
Affiliated Practices ($17,490) less 31.5 percent of the cash collections of the
practices ($5,519) appropriately adjusted for various provisions of the service
fee agreement (taken together, a net increase of $926). The resulting pro forma
management service fee for the year ended December 31, 1996 is $12,897.
The pro forma management service fee for practices that have agreed to the
Alternative Contract represents 13.5 percent of revenues ($724) and
reimbursement of the operating expenses of those practices ($2,935). The total
pro forma management service revenues would have been:
Practices participating under the
Standard Contract.................... $ 12,897
Practices participating under the
Alternative Contract................. 3,659
Practices participating under flat
fee arrangements..................... 1,582
---------
Total pro forma management
service revenues............. $ 18,138
=========
Apple will be managed on a regional basis. The following information on the
pro forma management service fee is provided on a regional basis as supplemental
information.
HISTORICAL PRO FORMA
PATIENT MANAGEMENT
REGION REVENUES SERVICE FEES
- ------------------------------------- ----------- -------------
California........................... $ 5,358 $ 3,659
Western.............................. 10,709 7,640
East Coast........................... 5,392 4,094
Central.............................. 3,598 2,745
----------- -------------
$25,057 $18,138
=========== =============
F-12
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 8
The Company............................. 15
Use of Proceeds......................... 15
Dividend Policy......................... 15
Dilution................................ 16
Capitalization.......................... 17
Selected Financial Data................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 21
Management.............................. 33
Certain Transactions.................... 38
Security Ownership of Certain Beneficial
Owners and Management................. 41
Description of Capital Stock............ 42
Shares Eligible for Future Sale......... 45
Underwriting............................ 47
Legal Matters........................... 48
Experts................................. 48
Additional Information.................. 49
Index to Financial Statements........... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,350,000 SHARES
[LOGO APPLE ORTHODONTIX]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
EQUITABLE SECURITIES CORPORATION
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company
(other than underwriting compensation expected to be incurred) in connection
with the offering described in this Registration Statement. All amounts are
estimates, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Listing Fee.
SEC Registration Fee................. $ 9,828
NASD Filing Fee...................... 3,615
American Stock Exchange Listing
Fee.................................. 42,500
Blue Sky Fees and Expenses........... 10,000
Printing Costs....................... 200,000
Legal Fees and Expenses.............. 1,450,000
Accounting Fees and Expenses......... 3,300,000
Transfer Agent and Registrar Fees and
Expenses........................... 5,000
Premiums for D&O Insurance........... 125,000
Miscellaneous........................ 354,057
------------
Total...................... $ 5,500,000
============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such
II-1
<PAGE>
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorney's
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not
II-2
<PAGE>
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
BYLAWS
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent permitted
by applicable law, as in effect as of the date of the adoption of the Bylaws or
to such greater extent as applicable law may thereafter permit, from and against
all losses, liabilities, claims, damages, judgments, penalties, fines, amounts
paid in settlement and expenses (including attorneys' fees) whatsoever arising
out of any event or occurrence related to the fact that such person is or was a
director or officer of the Company and further provide that the Company may, but
is not required to, indemnify and hold harmless any employee or agent of the
Company or a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise who
is or was serving in such capacity at the written request of the Company;
provided, however, that the Company is only required to indemnify persons
serving as directors, officers, employees or agents of the Company for the
expenses incurred in a proceeding if such person is a party to and is
successful, on the merits or otherwise, in such proceeding, or if unsuccessful
in the proceeding, but successful as to a matter in such proceeding, the
expenses attributable to such matter and provided further that the Company may,
but is not required to, indemnify such persons who are serving as a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise at the written request of the
Company for the expenses incurred in a proceeding if such person is a party to
and is successful, on the merits or otherwise, in such proceeding. The Bylaws
further provide that, in the event of any threatened, or pending action, suit or
proceeding in which any of the persons referred to above is a party or is
involved and that may give rise to a right of indemnification under the Bylaws,
following written request by such person, the Company will promptly pay to such
person amounts to cover expenses reasonably incurred by such person in such
proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written undertaking executed by or on behalf of such person providing
that such person will repay the advance if it is ultimately determined that such
person is not entitled to be indemnified by the Company as provided in the
Bylaws and (ii) satisfactory evidence as to the amount of such expenses.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
TRICAP PARTNERS, L.L.C. AGREEMENT
The financial advisory consulting agreement provides for the
indemnification of the directors and officers of the Company in certain
circumstances.
INSURANCE
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
On October 11, 1996, the Company issued 420, 415.5, 52.5, 40, 10, 10, 10, 5
and 5 shares of Common Stock to TriCap Funding I, L.L.C., John G. Vondrak,
D.D.S., W. Daniel Cook, Robert J. Syverson, Roxanne Robertson, Wm. Randol
Womack, D.D.S., Duncan Y. Brown, D.D.S., Wanda Rose and Stephen DeOrlow,
Trustee, respectively, the founders of the Company, for $0.01 per share. On
December 9, 1996, the Company issued 23.5, 24.5, 5 and 2.5 shares of Common
Stock to Michael W. Harlan, LeeAnn Peniche, Orthodontic Investors of Texas II,
Inc. and Allan Benson, respectively, for $3.00 per share. Such issuances were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as transactions not involving any public offering.
II-3
<PAGE>
In April 1997, each outstanding share of Common Stock was reclassified into
4,012.5569 shares of Class B Stock (the "Stock Split"). The Stock Split was
exempt from the registration requirements of the Securities Act as it did not
involve a "sale," as defined in Section 2(3) of the Securities Act.
Simultaneously with the completion of this Offering, the Company will issue
3,025,621 shares of Common Stock in connection with the acquisition of the
Founding Affiliated Practices. Such issuances will be exempt for the
registration requirements of Section 4(2) thereof as transactions not involving
any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement
2.1+ -- Form of Agreement and Plan of Reorganization
2.2+ -- Form of Uniform Provisions relating to Agreement and Plan of Reorganization
2.3 -- Form of Uniform Provisions relating to Contribution Agreement with Sole Proprietorships
2.4 -- Form of Uniform Provisions relating to Contribution Agreement with Professional
Corporations or Professional Associations
2.5 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Orthodontics
Exclusively, Ltd. and Paul Bonham, D.D.S.
2.6 -- Contribution Agreement among Apple Orthodontix, Inc., Duncan Y. Brown P.C. and Dr. Duncan
Y. Brown.
2.7 -- Contribution Agreement among Apple Orthodontix, Inc., Roger L. Bumgarner, D.D.S., P.C.,
Roger Bumgarner, D.D.S., P.C. and Roger L. Bumgarner, D.D.S.
2.8 -- Contribution Agreement between Apple Orthodontix, Inc. and Thomas K. Chubb, D.D.S.
2.9 -- Contribution Agreement among Apple Orthodontix, Inc., Stanley D. Crawford, D.D.S., P.C.
and Stanley D. Crawford, D.D.S.
2.10 -- Contribution Agreement among Apple Orthodontix, Inc., Western New York Orthodontic Care,
P.C. and Anthony G. Deluke, D.D.S.
2.11 -- Contribution Agreement between Apple Orthodontix, Inc. and Robert J. Dennington, D.D.S.,
M.S.D.
2.12 -- Contribution Agreement between Apple Orthodontix, Inc. and Philip DePasquale, D.D.S.
2.13 -- Contribution Agreement among Apple Orthodontix, Inc., Robert S. Fields, D.M.D., P.C. and
Robert S. Fields, D.M.D.
2.14 -- Contribution Agreement among Apple Orthodontix, Inc. and Robert C. Frantz, D.D.S., P.C.
and Robert C. Frantz, D.D.S.
2.15 -- Contribution Agreement among Apple Orthodontix, Inc., Andrew Girardot, Jr., D.D.S., P.C.
and Andrew Girardot, Jr., D.D.S.
2.16 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Bruce S. Harris,
D.D.S., Inc. and Bruce S. Harris, D.D.S.
2.17 -- Contribution Agreement among Apple Orthodontix, Inc., James H. Jennings, D.D.S., P.A. and
James H. Jennings, D.D.S.
2.18 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Phillip Milanovich,
D.D.S., M.S., P.C. and Phillip Milanovich, D.D.S., M.S.
2.19 -- Contribution Agreement between Apple Orthodontix, Inc. and Bowen D. Miles, D.M.D.
2.20 -- Contribution Agreement among Apple Orthodontix, Inc., Mark J. Mills, D.D.S., P.C. and Mark
J. Mills, D.D.S.
2.21 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Carlos F. Navarro,
D.D.S., M.S.D., P.C. and Carlos F. Navarro, D.D.S., M.S.D.
2.22 -- Contribution Agreement among Apple Orthodontix, Inc., Paul Rigali, D.D.S., P.C. and Paul
Rigali, D.D.S.
2.23 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Carl P. Roy, D.D.S.,
M.S., P.C. and Carl P. Roy, D.D.S., M.S.
II-4
<PAGE>
2.24 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Budd Rubin, D.D.S.,
M.S., Inc. and Budd Rubin, D.D.S., M.S.
2.25 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., John Dell Sauter,
D.D.S., M.D.S., P.C. and John Dell Sauter, D.D.S., M.D.S.
2.26 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Donald D. Schmitz,
D.D.S., M.S., Ltd. and Donald D. Schmitz, D.D.S., M.S.
2.27 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Dr. Charles L.
Schnibben, Ltd. and Charles L. Schnibben, D.D.S.
2.28 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Darrell G. Smith,
D.D.S., P.C. and Darrell G. Smith, D.D.S.
2.29 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Ronald N. Spiegel,
D.M.D., Inc. and Ronald N. Spiegel, D.M.D.
2.30 -- Contribution Agreement between Apple Orthodontix, Inc. and Michael C. Theurer, D.D.S.
2.31 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Thomas A. Tiller,
D.D.S., Inc. and Thomas A. Tiller, D.D.S.
2.32 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Jack D. Utley, Jr.,
D.M.D., P.C. and Jack D. Utley, Jr., D.M.D.
2.33 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., John G. Vondrak Apple
Orthodontix, Inc. and John G. Vondrak, D.D.S.
2.34 -- Contribution Agreement between Apple Orthodontix, Inc. and Ira S. Wiedman, D.D.S.
2.35 -- Agreement and Plan of Reorganization among Apple Orthodontix, Inc., Ronald H. Roth, D.D.S.
and Brian W. Wong, D.D.S., P.C. and Brian W. Wong, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Apple agrees to furnish a copy of such schedules and exhibits to the Commission upon
request.
3.1+ -- Restated Certificate of Incorporation
3.2+ -- Bylaws
4.1 -- Form of certificate evidencing ownership of Common Stock of Apple Orthodontix, Inc.
4.2+ -- Form of Registration Rights Agreement
4.3+ -- Registration Rights Agreement among Apple Orthodontix, Inc., John G. Vondrak, D.D.S. and
TriCap Funding I, L.L.C.
4.4+ -- Registration Rights Agreement between TriCap Partners, L.L.C. and Apple Orthodontix, Inc.
5.1 -- Opinion of Jackson & Walker, L.L.P.
10.1+ -- Apple Orthodontix, Inc., 1996 Stock Option Plan
10.2+ -- Employment Agreement between Apple Orthodontix, Inc. and John G. Vondrak, D.D.S.
10.3+ -- Employment Agreement between Apple Orthodontix, Inc. and Robert J. Syverson
10.4+ -- Employment Agreement between Apple Orthodontix, Inc. and Michael W. Harlan
10.5+ -- Employment Agreement between Apple Orthodontix, Inc. and W. Daniel Cook
10.6 -- Form of California Service Agreement
10.7+ -- Employment Agreement of H. Steven Walton
10.8 -- Form of Service Agreement
10.9 -- Consulting Agreement between TriCap Partners, L.L.C. and Apple Orthodontix, Inc.
10.10 -- Amendment to Consulting Agreement between TriCap Partners and Apple Orthodontix, Inc.
10.11 -- Form of Flat Fee Service Agreement
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Jackson & Walker, L.L.P. (contained in Exhibit 5.1)
24.1+ -- Power of Attorney (contained on the signature page of this Registration Statement)
</TABLE>
- ------------
+Previously filed.
II-5
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payments by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
APPLE ORTHODONTIX, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON MAY 11, 1997.
APPLE ORTHODONTIX, INC.
By: /s/ JOHN G. VONDRAK, D.D.S.
JOHN G. VONDRAK, D.D.S.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON MAY 11, 1997.
SIGNATURES TITLE
- -------------------------------------- ----------------------------------------
/s/JOHN G. VONDRAK, D.D.S. Chairman of the Board and Chief
JOHN G. VONDRAK, D.D.S. Executive Officer (Principal Executive
Officer)
/s/MICHAEL W. HARLAN* Vice President and Chief Financial
MICHAEL W. HARLAN Officer (Principal Financial and
Accounting Officer)
/s/W. DANIEL COOK* Director
W. DANIEL COOK
/s/WILLIAM W. SHERRILL* Director
WILLIAM W. SHERRILL
*By /s/MICHAEL W. HARLAN
MICHAEL W. HARLAN,
INDIVIDUALLY AND AS
ATTORNEY-IN-FACT
II-7
EXHIBIT 2.3
Annex 1
APPLE ORTHODONTIX, INC.
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE DEFINED IN THE
CONTRIBUTION AGREEMENT AMONG APPLE ORTHODONTIX, INC., , AND THE OWNERS
NAMED THEREIN (CALLED THEREIN AND HEREIN "THIS AGREEMENT"), TO WHICH THESE
UNIFORM PROVISIONS ARE ATTACHED AS ANNEX 1 ARE USED HEREIN AS DEFINED
THEREIN.
<PAGE>
TABLE OF CONTENTS
ARTICLE I ADDITIONAL DEFINITIONS........................................... 1
Section 1.02 Additional Defined Terms................................ 1
Section 1.03 Other Definitional Provisions........................... 12
Section 1.04 Captions................................................ 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 12
Section 3.02 Ownership and Status of Ownership Interest.............. 12
Section 3.03 Power of the Owners; Approval of the Acquisition........ 13
Section 3.04 No Conflicts or Litigation.............................. 13
Section 3.05 No Brokers.............................................. 14
Section 3.06 [Intentionally Deleted]................................. 14
Section 3.07 Control of Related Business............................. 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER AND
THE OWNERS........................................................... 14
Section 4.02 Qualification........................................... 14
Section 4.03 Authorization: Enforceability; Absence of
Conflicts; Required Consents.......................... 14
Section 4.04 Charter Documents and Records; No Violation............. 15
Section 4.05 No Defaults............................................. 15
Section 4.06 Seller Subsidiaries..................................... 16
Section 4.07 Capital Stock of the Seller and the Seller
Subsidiaries.......................................... 16
Section 4.08 Transactions in Capital Stock........................... 16
Section 4.09 No Bonus Shares......................................... 17
Section 4.10 Predecessor Status; Etc................................. 17
Section 4.11 Related Party Agreements................................ 17
Section 4.12 Litigation.............................................. 17
Section 4.13 Financial Statements; Disclosure........................ 17
Section 4.14 Compliance With Laws.................................... 18
Section 4.15 Certain Environmental Matters........................... 18
Section 4.16 Liabilities and Obligations............................. 19
Section 4.17 Receivables............................................. 19
Section 4.18 Owned and Leased Real Properties........................ 19
Section 4.19 Owned and Leased Property, Plant and Equipment.......... 20
Section 4.20 Proprietary Rights...................................... 21
Section 4.21 Title to Other Properties............................... 21
Section 4.22 Commitments............................................. 21
Section 4.23 Capital Expenditures.................................... 23
Section 4.24 Inventories............................................. 23
Section 4.25 Insurance............................................... 23
Section 4.26 Employee Matters........................................ 24
Section 4.27 Compliance with ERISA, Etc.............................. 26
- i -
<PAGE>
Section 4.28 Taxes................................................... 28
Section 4.29 Government Contracts.................................... 29
Section 4.30 Absence of Changes...................................... 29
Section 4.31 Bank Relations; Powers of Attorney...................... 31
Section 4.32 Relations With Governments, Etc......................... 31
Section 4.33 Preemptive and Other Rights; Waiver..................... 31
Section 4.34 Reliance on Representatives............................. 31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ......................... 32
Section 5.02 Organization; Power..................................... 32
Section 5.03 Authorization; Enforceability; Absence of
Conflicts; Required Consents......................... 32
Section 5.04 Charter Documents....................................... 33
Section 5.06 Subsidiaries............................................ 33
Section 5.07 Liabilities............................................. 33
Section 5.08 Compliance With Laws; No Litigation..................... 34
Section 5.09 No Brokers.............................................. 34
Section 5.10 Private Placement Memorandum............................ 34
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE..................... 34
Section 6.02 Access and Cooperation; Due Diligence................... 34
Section 6.03 Conduct of Business Pending Closing..................... 35
Section 6.04 Prohibited Activities................................... 35
Section 6.05 No Shop; Release of Directors........................... 37
Section 6.06 [Intentionally Deleted]................................. 37
Section 6.07 Notification of Certain Matters......................... 37
Section 6.08 Supplemental Information................................ 38
Section 6.09 Cooperation in Connection With the IPO.................. 38
Section 6.10 Additional Financial Statements and Other Information... 39
Section 6.11 Termination or Transfer of Plans........................ 39
Section 6.12 [Intentionally Deleted]................................. 39
Section 6.13 HSR Act Matters......................................... 39
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION......................................................... 40
Section 7.02 Conditions to the Obligations of Each Party............. 40
Section 7.03 Conditions to the Obligations of the Seller
and the Owners........................................ 42
Section 7.04 Conditions to the Obligations of Apple ................. 43
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE.................... 44
Section 8.02 Disclosure.............................................. 44
Section 8.03 Preparation and Filing of Tax Returns................... 44
Section 8.04 Directors............................................... 45
Section 8.05 [Intentionally deleted]................................. 45
Section 8.06 Access.................................................. 45
- ii -
<PAGE>
Section 8.07 Licenses and Permits.................................... 45
Section 8.08 Orthodontist Employment Agreement....................... 45
ARTICLE IX INDEMNIFICATION................................................. 45
Section 9.02 Survival of Representations and Warranties.............. 45
Section 9.03 Indemnification of Apple Indemnified Parties............ 46
Section 9.04 Indemnification of Seller Indemnified Parties........... 47
Section 9.05 Conditions of Indemnification........................... 47
Section 9.06 Remedies Not Exclusive.................................. 49
Section 9.07 Limitations on Indemnification.......................... 49
ARTICLE XI GENERAL PROVISIONS.............................................. 50
Section 11.15 Treatment of Confidential Information.................. 50
Section 11.16 Bulk Sales............................................. 51
- iii -
<PAGE>
THE UNIFORM PROVISIONS
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02 ADDITIONAL DEFINED TERMS. These provisions constitute the
Uniform Provisions of the Contribution Agreement by and between Apple and the
Owner and, although in a separate document, are part of and are to be included
in the Contribution Agreement. As used in this Agreement, the following terms
have the meanings assigned to them below:
"Acquisition Proposal" has the meaning specified in Section 6.05.
"Affiliate" means, as to any specified Person, any other Person that,
directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by or is under common control with the specified Person.
As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person (whether through ownership of Capital Stock of that Person,
by contract or otherwise).
"Apple Common Stock" means the common stock, par value $.01 per share, of
Apple.
"Apple Indemnified Party" means Apple and its Affiliates and each of their
respective officers, directors, employees, agents, financial advisors and
counsel; provided, however, that no Person who indemnifies Apple Indemnified
Parties in this Agreement in his capacity as an Owner will be an Apple
Indemnified Party for purposes of this Agreement, notwithstanding that the
Person is an Apple Indemnified Party for purposes of one or more of the Other
Agreements.
"Apple Indemnified Loss" has the meaning specified in Section 9.03.
"Capital Lease" means a lease of (or other agreement conveying the right
to use) real or personal property that is required to be classified and
accounted for as a capital lease under GAAP as in effect on the date of this
Agreement.
"Capital Stock" means, with respect to: (a) any corporation, any share, or
any depositary receipt or other certificate representing any share, of an equity
ownership interest in that corporation; and (b) any other Entity, any share,
membership or other percentage interest, unit of participation or other
equivalent (however designated) of an equity interest in that Entity.
"Cash Compensation" means, as applied to any employee, nonemployee
director or officer of, or any natural person who performs consulting or other
independent contractor services for, the Seller or any Seller Subsidiary, the
wages, salaries, bonuses (discretionary and formula), fees and other cash
compensation paid or payable by the Seller and each Seller Subsidiary to that
employee or other natural person.
1
<PAGE>
"CERCLA" means the Comprehensive Environmental Response, Conservation, and
Liability Act of 1980.
"Charter Documents" means, with respect to any Entity at any time, in each
case as amended, modified and supplemented at that time, (a) the articles or
certificate of formation, incorporation, organization or association (or the
equivalent organizational documents) of that Entity, (b) the bylaws, limited
liability company agreement or regulations or partnership agreement (or the
equivalent governing documents) of that Entity and (c) each document setting
forth the designation, amount and relative rights, limitations and preferences
of any class or series of that Entity's Capital Stock or of any rights in
respect of that Entity's Capital Stock.
"Claim Notice" has the meaning specified in Section 9.05.
"Closing" has the meaning specified in Section 7.01.
"COBRA" means the Comprehensive Omnibus Budget Reconciliation Act of 1984.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means, with respect to any Person, all trade
secrets and other confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, capital expenditure
projects, cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any Governmental Authority
and all other confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or on behalf of
that Person.
"Current Balance Sheet" has the meaning specified in Section 1.01.
"Current Balance Sheet Date" has the meaning specified in Section 1.01.
"Current Date" means any day during the 20-day period ending on the date
of the Closing.
"Damage" to any specified Person means any cost, damage (including any
consequential, exemplary, punitive or treble damage) or expense (including
reasonable fees and actual disbursements by attorneys, consultants, experts or
other Representatives and Litigation costs) to, any fine of or penalty on or any
liability (including loss of earnings or profits) of any other nature of that
Person.
"Damage Claim" means, as asserted (a) against any specified Person, any
claim, demand or Litigation made or pending against that Person for Damages to
any other Person, or (b) by the specified Person, any claim or demand of the
specified Person against any other Person for Damages to the specified Person.
2
<PAGE>
"Derivative Securities" of a specified Entity means any Capital Stock or
debt security or other Indebtedness of the specified Entity or any other Person
which is convertible into or exchangeable for, or any option, warrant or other
right to acquire, (a) any unissued Capital Stock of the specified Entity or (b)
any Capital Stock of the specified Entity which has been issued and is being
held by the Entity directly or indirectly as treasury Capital Stock.
"DGCL" means the General Corporation Law of the State of Delaware.
"Election Period" has the meaning specified in Section 9.05.
"Employee Policies and Procedures" means at any time all employee manuals
and all material policies, procedures and work-related rules that apply at that
time to any employee, nonemployee director or officer of, or any other natural
person performing consulting or other independent contractor services for, the
Seller or any Seller Subsidiary.
"Employment Agreement" means at any time any (a) agreement to which the
Seller or any Seller Subsidiary is a party which then relates to the direct or
indirect employment or engagement, or arises from the past employment or
engagement, of any natural person by the Seller or any Seller Subsidiary,
whether as an employee, a nonemployee officer or director, a consultant or other
independent contractor, a sales representative or a distributor of any kind,
including any employee leasing or service agreement and any noncompetition
agreement, and (b) agreement between the Seller or any Seller Subsidiary and any
Person which arises from the sale of a business by that Person to the Seller or
any Seller Subsidiary and limits that Person's competition with the Seller or
any Seller Subsidiary.
"Entity" means any sole proprietorship, corporation, professional
association or corporation, partnership of any kind having a separate legal
status, limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company or joint venture.
"Environmental Laws" means any and all Governmental Requirements relating
to the environment or worker health or safety, including ambient air, surface
water, land surface or subsurface strata, or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes (including Solid Wastes, Hazardous
Wastes or Hazardous Substances) or noxious noise or odor into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, recycling, removal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes (including petroleum, petroleum distillates, asbestos or
asbestos-containing material, polychlorinated biphenyls, chlorofluorocarbons
(including chlorofluorocarbon-12) or hydrochlorofluorocarbons).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any specified Person at any time,
any other Person, including an Affiliate of the specified Person, that is, or at
any time within six years of
3
<PAGE>
that time was, a member of any ERISA Group of which the specified Person is or
was a member at the same time.
"ERISA Affiliate Pension Plan" has the meaning specified in Section 4.26.
"ERISA Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA and includes any ERISA Pension Benefit Plan.
"ERISA Group" means any "group of organizations" within the meaning of
Section 414(b), (c), (m) or (o) of the Code or any "controlled group" as defined
in Section 4001(a)(14) of ERISA.
"ERISA Pension Benefit Plan" means any "employee pension benefit plan," as
defined in Section 3(2) of ERISA, including any plan that is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code (excluding any Multiemployer Plan).
"Exchange Act" means the Securities Exchange Act of 1934.
"Final Prospectus" means the prospectus included in the Registration
Statement at the time it becomes effective, except that if the prospectus first
furnished to the Underwriter after the Registration Statement becomes effective
for use in connection with the IPO differs from the prospectus included in the
Registration Statement at the time it becomes effective (whether or not that
prospectus so furnished is required to be filed with the SEC pursuant to
Securities Act Rule 424(b)), the prospectus so furnished is the "Final
Prospectus."
"Financial Statements" means the Initial Financial Statements and the
other financial statements of the Seller and the Seller Subsidiaries, delivered
to Apple pursuant to Section 6.10 prior to the IPO Closing Date.
"GAAP" means generally accepted accounting principles and practices in the
United States as in effect from time to time which (i) have been concurred in by
Arthur Andersen LLP and (ii) have been or are applied on a basis consistent
(except for changes concurred in by Arthur Andersen LLP) with the most recent
audited Financial Statements delivered to Apple prior to the IPO Closing Date.
"Governmental Approval" means at any time any authorization, consent,
approval, permit, franchise, certificate, license, implementing order or
exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
"Governmental Authority" means (a) any national, state, county, municipal
or other government, domestic or foreign, or any agency, board, bureau,
commission, court, department or other instrumentality of any such government,
or (b) any Person having the authority under any applicable Governmental
Requirement to assess and collect Taxes for its own account.
4
<PAGE>
"Governmental Requirement" means at any time (a) any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
award, authorization or other requirement of any Governmental Authority in
effect at that time or (b) any obligation included in any certificate,
certification, franchise, permit or license issued by any Governmental Authority
or resulting from binding arbitration, including any requirement under common
law, at that time.
"Guaranty" means, for any specified Person, without duplication, any
liability, contingent or otherwise, of that Person guaranteeing or otherwise
becoming liable for any obligation of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including any liability of
the specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for the
purpose of assuring the owner of that obligation of its payment or (c) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not include
endorsements for collection or deposit in the ordinary course of the endorser's
business.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Immediate Family Member" of an Owner means at any time: (a) if that Owner
is a natural person, any child or grandchild (by blood or legal adoption) or
spouse of such Owner at that time, or any child of that spouse; and (b) if that
Owner is an Entity whose ultimate beneficial owner is a natural person, or a
natural person and his spouse, any child or grandchild (by blood or legal
adoption) or spouse at that time (if not then an ultimate beneficial owner of
that Entity), or any child of that spouse, of the ultimate beneficial owner or
owners.
"Indebtedness" of any Person means, without duplication, (a) any liability
of that Person (i) for borrowed money or arising out of any extension of credit
to or for the account of that Person (including reimbursement or payment
obligations with respect to surety bonds, letters of credit, banker's
acceptances and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures or similar instruments,
(iii) in respect of Capital Leases or (iv) in respect of Interest Rate
Protection Agreements, (b) any liability secured by any Lien upon any property
or assets of that Person (or upon any revenues, income or profits of that Person
therefrom), whether or not that Person has assumed that liability or otherwise
become liable for the payment thereof or (c) any liability of others of the type
described in the preceding clause (a) or (b) in respect of which that Person has
incurred, assumed or acquired a liability by means of a Guaranty.
"Indemnified Party" has the meaning specified in Section 9.05.
"Indemnifying Party" has the meaning specified in Section 9.05.
"Indemnity Notice" has the meaning specified in Section 9.05.
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"Information" means written information, including (a) data, certificates,
reports and statements (excluding Financial Statements) and (b) summaries of
unwritten agreements, arrangements, contracts, plans, policies, programs or
practices or of unwritten amendments or modifications of, supplements to or
waivers under any of the foregoing documents.
"IPO" means the first time after January 31, 1997 a registration statement
filed under the Securities Act and respecting a primary offering by Apple of
shares of Apple Common Stock (other than a registration statement respecting
shares being offered pursuant to a Seller ERISA Benefit Plan or any Other
Compensation Plan) is declared effective under the Securities Act and the shares
registered by that registration statement are issued and sold by Apple
(otherwise than pursuant to the exercise by the Underwriter of any
over-allotment option).
"IPO Closing Date" means the date on which Apple first receives payment
for the shares of Apple Common Stock it sells to the Underwriter in the IPO.
"IPO Price" means the price per share of Apple Common Stock which is set
forth as the "price to public" on the cover page of the Final Prospectus.
"IPO Pricing Date" means the date, if any, on which Apple and the
Underwriter agree in the Underwriting Agreement to the price per share of Apple
Common Stock at which the Underwriter, subject to the terms and conditions of
the Underwriting Agreement, will purchase newly issued shares of Apple Common
Stock from Apple on the IPO Closing Date.
"IRS" means the Internal Revenue Service.
"Lien" means, with respect to any property or asset of any Person (or any
revenues, income or profits of that Person therefrom) (in each case whether the
same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise), (a) any mortgage, lien, security interest, pledge,
attachment, levy or other charge or encumbrance of any kind thereupon or in
respect thereof or (b) any other arrangement under which the same is
transferred, sequestered or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
Section 8-302(b) of each applicable Uniform Commercial Code) in the case of any
Capital Stock. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any asset that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to that asset.
"Litigation" means any action, case, proceeding, claim, grievance, suit or
investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration proceeding.
"Material" means, as applied to any Entity, material to the business,
operations, property or assets, liabilities, financial condition or results of
operations of that Entity and its Subsidiaries considered as a whole.
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"Material Adverse Effect" means, with respect to the consequences of any
fact or circumstance (including the occurrence or non-occurrence of any event)
to the Seller and the Seller Subsidiaries considered as a whole (or after the
IPO Closing Date, Apple) that such fact or circumstance has caused, is causing
or will cause, directly, indirectly or consequentially, singly or in the
aggregate with other facts and circumstances, any Damages in excess of the
Threshold Amount.
"Material Agreement" of an Entity means any contract or agreement (a) to
which that Entity or any of its Subsidiaries is a party, or by which that Entity
or any of its Subsidiaries is bound or to which any property or assets of that
Entity or any of its Subsidiaries is subject and (b) which is Material to that
Entity.
"Minimum Cash Amount" has the meaning specified in Section 7.02.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Section 414(f) of the Code or Section 3(37) of ERISA.
"Organization State" means, as applied to (a) any corporation, its state
or other jurisdiction of incorporation, (b) any limited liability company or
limited partnership, the state or other jurisdiction under whose laws it is
organized and existing in that legal form, and (c) any other Entity, the state
or other jurisdiction whose laws govern that Entity's internal affairs.
"Orthodontics" means providing services related to the movement and
rearrangement of teeth.
"Other Agreements" has the meaning specified in the Preliminary Statement
in this Agreement.
"Other Compensation Plan" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the Seller
or any Seller Subsidiary, or to which the Seller or any Seller Subsidiary
contributes, on behalf of any of its employees, nonemployee directors or
officers or other natural persons performing consulting or other independent
contractor services for the Seller or any Seller Subsidiary, (a) including all
such arrangements, plans, policies, practices or programs providing for
severance pay, deferred compensation, incentive, bonus or performance awards or
the actual or phantom ownership of any Capital Stock or Derivative Securities of
the Seller or any Seller Subsidiary, but (b) excluding all Seller ERISA Pension
Plans and Employment Agreements.
"Other Financing Sources" has the meaning specified in Section 7.02.
"Other Transaction Documents" means the Other Agreements and the other
written agreements, documents, instruments and certificates at any time executed
pursuant to or in
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connection with the Other Agreements (other than the Transaction Documents and
the Underwriting Agreement), all as amended, modified or supplemented from time
to time.
"Owner means any Person who owns any ownership interest in, or is a member
of, the Seller.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Investments" means at the time of purchase or other acquisition
by the Seller or any Seller Subsidiary (a) obligations issued or guaranteed by
the United States of America with a remaining maturity not exceeding one year,
(b) commercial paper with maturities of not more than 270 days and a published
rating of not less than A-1 by S&P or P-1 by Moody's and (c) certificates of
deposit and bankers' acceptances having maturities of not more than one year of
any commercial bank or trust company if (A) that bank or trust company has a
combined capital and surplus of at least $500,000,000 and (B) its unsecured
long-term debt obligations, or those of a holding company of which it is a
subsidiary, are rated not less than A- by S&P or A3 by Moody's.
"Permitted Liens" means, as applied to the property or assets of any
Person (or any revenues, income or profits of that Person therefrom): (a) Liens
for Taxes if the same are not at the time due and delinquent; (b) Liens incurred
in the ordinary course of that Person's business in connection with worker
compensation, unemployment insurance and other social security legislation
(other than pursuant to ERISA or Section 412(n) of the Code); (c) easements,
rights-of-way, reservations, restrictions and other similar encumbrances
incurred in the ordinary course of that Person's business or existing on
property and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (d) defects or irregularities in
that Person's title to its real properties which do not materially (i) diminish
the value of the surface estate or (ii) interfere with the ordinary conduct of
that Person's business or the use of any of such properties; (e) any interest or
title of a lessor of assets being leased by any Person pursuant to any Capital
Lease disclosed in Section 4.19 of the Disclosure Statement or any lease that,
pursuant to GAAP, would be accounted for as an operating lease; and (f) Liens
securing purchase money Indebtedness disclosed in Section 4.16 of the Disclosure
Statement so long as such Liens do not attach to any property or assets other
than the properties or assets purchased with the proceeds of such Indebtedness.
"Person" means any natural person, Entity, estate, trust, union or
employee organization or Governmental Authority or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"Plan" has the meaning specified in Section 4.27.
"Private Placement Memorandum" means the Apple Private Placement
Memorandum dated as of January 28, 1997 relating to the offer of Apple Common
Stock in connection with the Acquisition.
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"Professional Codes" means any and all Governmental Requirements relating
to the licensing or other regulation of the business of providing orthodontic
care to patients.
"Prohibited Transaction" means any transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Property, Plant and Equipment" means at any time any property that then
would be included and classified as property, plant and equipment on a
consolidated balance sheet prepared in accordance with GAAP of the Seller and
the Seller Subsidiaries.
"Proprietary Rights" means (a) patents, applications for patents and
patent rights, (b) in each case, whether registered, unregistered or under
pending registration, trademark rights, trade names, trade name rights,
corporate names, business names, trade styles or dress, service marks and logos
and other trade designations and copyrights and (c), in the case of the Seller
or any Seller Subsidiary, all agreements relating to the technology, know-how or
processes used in any business of the Seller or any Seller Subsidiary.
"Qualified Plans" has the meaning specified in Section 4.27.
"RCRA" means the Resource Conservation and Recovery Act of 1976.
"Registration Rights Agreement" means the registration rights agreement to
be executed and delivered at the Closing by Apple and the Seller and each Owner,
as applicable, electing to be parties thereto in the form of Exhibit
7.03(b)(iv), with the blanks appropriately filled.
"Registration Statement" means the registration statement, including (a)
each preliminary prospectus included therein prior to the date on which that
registration statement is declared effective under the Securities Act (including
any prospectus filed with the SEC pursuant to Securities Act Rule 424(b)), (b)
the Final Prospectus and (c) any amendments thereof and all supplements and
exhibits thereto, filed by Apple with the SEC to register shares of Apple Common
Stock under the Securities Act for public offering and sale in the IPO.
"Returns" means the returns, reports or statements (including any
information returns) any Governmental Requirement requires to be filed for
purposes of any Tax.
"Related Party Agreement" means any contract or other agreement, written
or oral, (a) to which the Seller or any Seller Subsidiary is a party or is bound
or by which any property of the Seller or any Seller Subsidiary is bound or may
be subject and (b) (i) to which any Owner or any of that Owner's or the Seller's
Related Persons or Affiliates also is a party, (ii) of which any Owner or any of
that Owner's or the Seller's Related Persons or Affiliates is a beneficiary or
(iii) as to which any transaction contemplated thereby properly would be
characterized (without regard to the amount involved) as a related party
transaction for purposes of applying the disclosure requirements of GAAP or the
SEC applicable to the Registration Statement.
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"Related Person" of an Owner means: (a) if that Owner is a natural person,
(i) any Immediate Family Member of that Owner, (ii) any Estate of that Owner or
any Immediate Family Member of that Owner, (iii) the trustee of any inter vivos
or testamentary trust of which all the beneficiaries are Related Persons of that
Owner and (iv) any Entity the entire equity interest in which is owned by any
one or more of that Owner and Related Persons of that Owner; and (b) if that
Owner is an Entity, Estate or trust, (i) any Person who owns an equity interest
in that Owner on the date hereof, (ii) any Person who would be a Related Person
under clause (a) of this definition of a natural person who is an ultimate
beneficial owner of that Owner or (iii) any other Entity the entire equity
interest in which is owned by any one or more of that Owner and Related Persons
of that Owner. As used in this definition, "Estate" means, as to any natural
person who has died or been adjudicated mentally incompetent by a court of
competent jurisdiction, (i) that person's estate or (ii) the administrator,
conservator, executor, guardian or representative of that estate.
"Representatives" means, with respect to any Person, the directors,
officers, employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants or other agents of that
Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"Reportable Event" means, with respect to any Seller ERISA Pension Plan,
(a) the occurrence of any of the events set forth in Section 4043(b) or (c)
(other than a Reportable Event as to which the provision of 30 days' notice to
the PBGC is waived under applicable regulations), 4062(e) or 4063(a) of ERISA
with respect to that plan, (b) any event requiring the Seller or any ERISA
Affiliate to provide security to that plan under Section 401(a)(29) of the Code
or (c) any failure to make a payment required by Section 412(m) of the Code with
respect to that plan.
"Restricted Payment" means, with respect to any Entity at any time, any of
the following effected by that Entity: (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any Capital
Stock of that Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase or other acquisition for value of, or
any direct or indirect purchase, payment or sinking fund or similar deposit for
the redemption, retirement, purchase or other acquisition for value of, or to
obtain the surrender of, any then outstanding Capital Stock of that Entity or
any Affiliate of that Entity or any then outstanding warrants, options or other
rights to acquire or subscribe for or purchase unissued or treasury Capital
Stock of that Entity or any Affiliate of that Entity.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Security Agreement" has the meaning set forth in the Service Agreement.
"Seller Commitment" has the meaning specified in Section 4.22.
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"Seller ERISA Benefit Plan" has the meaning specified in Section 4.26.
"Seller ERISA Pension Plan" has the meaning specified in Section 4.26.
"Seller Indemnified Loss" has the meaning specified in Section 9.04.
"Seller Indemnified Party" means the Seller and each of his employees,
agents and counsel.
"Seller Subsidiary" means at any time any Entity that is a Subsidiary of
the Seller at that time.
"Solid Wastes, Hazardous Wastes or Hazardous Substances" have the meanings
ascribed to those terms in CERCLA, RCRA or any other Environmental Law
applicable to the business or operations of the Seller or any Seller Subsidiary
which imparts a broader meaning to any of those terms than does CERCLA or RCRA.
"S&P" means Standard and Poor's Rating Group.
"Subsidiary" of any specified Person at any time, means any entity a
majority of the Capital Stock of which is at that time owned or controlled,
directly or indirectly, by the specified Person.
"Supplemental Information" has the meaning specified in Section 6.08.
"Tax" or "Taxes" means all net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges or assessments of any nature whatever imposed by
any Governmental Requirement, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Taxing Authority" means any Governmental Authority having or purporting
to exercise jurisdiction with respect to any Tax.
"Termination Event" means, with respect to any Seller ERISA Pension Plan,
(a) any Reportable Event with respect to that plan which is likely to result in
the termination of that plan, (b) the termination of, or the filing of a notice
of intent to terminate, that plan or the treatment of any amendment to that plan
as a termination under Section 4041(c) of ERISA or (c) the institution of
proceedings to terminate, or the appointment of a trustee to administer, that
plan under Section 4042 of ERISA.
"Third Party Claim" has the meaning specified in Section 9.05.
"Transaction Document" means this Agreement, the Registration Rights
Agreement, the Service Agreement, the Security Agreement and the other written
agreements, documents,
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instruments and certificates executed pursuant to or in connection with this
Agreement (other than the Other Transaction Documents and the Underwriting
Agreement), including those specified in Article VII to be delivered at or
before the Closing, all as amended, modified or supplemented from time to time.
"Underwriter" means collectively (a) the investment banking firms that
prospectively may enter into the Underwriting Agreement and (b) from and after
the IPO Pricing Date, the investment banking firms parties to the Underwriting
Agreement.
"Underwriting Agreement" has the meaning specified in Section 7.02.
"Welfare Plan" means an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
Section 1.03 OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise
specified herein, all references herein to any Governmental Requirement defined
or referred to herein, including the Code, CERCLA, ERISA, the Exchange Act, RCRA
and the Securities Act, shall be deemed references to that Governmental
Requirement or any successor Governmental Requirement, as the same may have been
amended or supplemented from time to time, and any rules or regulations
promulgated thereunder.
(b) When used in this Agreement, the words "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any provision of this Agreement, and the words "Article," "Section,"
"Addendum," "Annex" and "Exhibit" refer to Articles and Sections of, and
Addenda, Annexes and Exhibits to, this Agreement unless otherwise specified.
(c) Whenever the context so requires, the singular number includes the
plural and vice versa, and a reference to one gender includes the other gender
and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any description
preceding such word, and the words "shall" and "will" are used interchangeably
and have the same meaning.
Section 1.04 CAPTIONS. Captions to Articles, Sections and subsections of,
and Addenda, Annexes and Exhibits to, this Agreement or any other Transaction
Document are included for convenience of reference only, and such captions shall
not constitute a part of this Agreement or any other Transaction Document for
any other purpose or in any way affect the meaning or construction of any
provision of this Agreement or any other Transaction Document.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
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Section 3.02 OWNERSHIP AND STATUS OF OWNERSHIP INTEREST. Each Owner is the
record and beneficial owner (or, if the Owner is a trust or the estate of a
deceased natural person, the legal owner) of the shares of Seller Common Stock
(in the case Seller is a corporation) or ownership interest (in the case Seller
is a partnership) set forth opposite the Owner's name in Section 3.02 of the
Disclosure Statement, free and clear of all Liens, except for the Liens
accurately set forth in Section 3.02 of the Disclosure Statement, all of which
will be released at or before the IPO Closing Date.
Section 3.03 POWER OF THE OWNERS; APPROVAL OF THE ACQUISITION. (a) Each
Owner has the full power, legal capacity and authority to execute and deliver
this Agreement and each other Transaction Document to which the Owner is a party
and to perform the Owner's obligations in this Agreement and in all other
Transaction Documents to which the Owner is a party. This Agreement constitutes,
and each such other Transaction Document, when executed in the Owner's
individual capacity and delivered by the Owner, will constitute, the legal,
valid and binding obligation of the Owner, enforceable against the Owner in
accordance with its terms, except as that enforceability may be (i) limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and (ii) subject
to general principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law). If the Owner is an Entity, the
Owner has obtained, in accordance with all applicable Governmental Requirements
and its Charter Documents, all approvals and the taking of all actions necessary
for the authorization, execution, delivery and performance by the Owner of this
Agreement and the other Transaction Documents to which the Owner is a party. If
the Owner is acting otherwise than in his individual capacity (whether as an
executor or a guardian or in any other fiduciary or representative capacity),
all actions on the part of the Owner and all other Persons (including any court)
necessary for the authorization, execution, delivery and performance by the
Owner of this Agreement and the other Transaction Documents to which the Owner
is a party have been duly taken.
(b) Each Owner, acting in each capacity in which he is entitled, by reason
of the Seller's Charter Documents or the Governmental Requirements of the
Seller's Organization State or for any other reason, to vote to approve or
disapprove the consummation of the Acquisition, has voted all Seller Common
Stock or interests in Seller (as the case may be) owned by him and entitled to a
vote or votes on that matter, in any one or more of the manners prescribed or
permitted by the Seller's Charter Documents or the Governmental Requirements of
the Seller's Organization State, whichever are controlling, to approve this
Agreement and the consummation of the Acquisition and the other transactions
contemplated hereby.
Section 3.04 NO CONFLICTS OR LITIGATION. The execution, delivery and
performance in accordance with their respective terms by each Owner of this
Agreement and the other Transaction Documents to which such Owner is a party do
not and will not (a) violate or conflict with any Governmental Requirement, (b)
breach or constitute a default under any agreement or instrument to which such
Owner is a party or by which such Owner is bound or any of the interests in
Seller owned by Owner is bound, (c) result in the creation or imposition of, or
afford any Person the right to obtain, any Lien upon any of the interests in
Seller owned by the Owner (or upon any revenues, income or profits of the Owner
therefrom) or (d) if the Owner is an Entity, violate the Owner's Charter
Documents. No Litigation is pending or, to the knowledge of such Owner,
threatened to which the Owner is or may become a party which (a) questions or
involves the validity or enforceability of any of the Owner's obligations under
any Transaction Document or (b) seeks (or reasonably may be expected to seek)
(i) to prevent or delay the consummation by the Owner of the transactions
contemplated by this Agreement to be
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consummated by the Owner or (ii) damages in connection with any consummation by
the Owner of the transactions contemplated by this Agreement.
Section 3.05 NO BROKERS. Except as disclosed in the Private Placement
Memorandum or in Section 11.03 of the Disclosure Statement, each Owner has not,
directly or indirectly, in connection with this Agreement or the transactions
contemplated hereby (a) employed any broker, finder or agent (other than a
Purchaser Representative) or (b) agreed to pay or incurred any obligation to pay
any broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 3.06 [INTENTIONALLY DELETED].
Section 3.07 CONTROL OF RELATED BUSINESS. Except as accurately set forth
in Schedule 3.07 of the Disclosure Statement, each Owner is not, alone or with
one or more other Persons, the controlling Affiliate of any Entity, business or
trade (other than the Seller and the Seller Subsidiaries, if the Owner is an
Affiliate of the Seller) that (a) is engaged in any line of business which is
the same as or similar to any line of business in which the Seller or any Seller
Subsidiary is engaged or (b) is, or has within the three-year period ending on
the date of this Agreement, engaged in any transaction with the Seller or any
Seller Subsidiary, except for transactions in the ordinary course of business of
the Seller or that Seller Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.02 QUALIFICATION. Section 4.02 of the Disclosure Statement
accurately lists all the jurisdictions in which each of the Seller and the
Seller Subsidiaries is authorized or qualified to own or lease and to operate
its properties or to carry on its business as now conducted, and neither the
Seller nor any Seller Subsidiary owns, leases or operates properties or carries
on its business in any jurisdiction not listed in that Section which is Material
to the Seller.
Section 4.03 AUTHORIZATION: ENFORCEABILITY; ABSENCE OF CONFLICTS; REQUIRED
CONSENTS. (a) The execution, delivery and performance by the Seller of this
Agreement and each other Transaction Document to which it is a party, and the
effectuation of the Acquisition and the other transactions contemplated hereby
and thereby, are within its corporate or partnership power under its Charter
Documents and the applicable Governmental Requirements of its Organization State
and have been duly authorized by all proceedings, including actions permitted to
be taken in lieu of proceedings, required under its Charter Documents and those
Governmental Requirements.
(b) This Agreement has been, and each of the other Transaction Documents
to which the Seller is a party, when executed and delivered to Apple will have
been, duly executed
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and delivered by the Seller and is, or when so executed and delivered will be,
the legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, except as that enforceability may be (i)
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and (ii)
subject to general principles of equity (regardless of whether that
enforceability is considered in a proceeding in equity or at law).
(c) Except as set forth in Section 4.03 of the Disclosure Statement, the
execution, delivery and performance in accordance with their respective terms by
the Seller of the Transaction Documents to which it is a party have not and will
not (i) violate, breach or constitute a default under (A) the Charter Documents,
if any, of the Seller and the Seller Subsidiaries, (B) any Governmental
Requirement applicable to any of the Seller and the Seller Subsidiaries or (C)
any Material Agreement of the Seller, (ii) result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not constituting
Indebtedness, of the any of the Seller and the Seller Subsidiaries or afford any
holder of any of that Indebtedness, or any beneficiary of any of those
Guaranties, the right to require any of the Seller and the Seller Subsidiaries
to redeem, purchase or otherwise acquire, reacquire or repay any of that
Indebtedness, or to perform any of those Guaranties, (iii) cause or result in
the imposition of, or afford any Person the right to obtain, any Lien upon any
property or assets of any of the Seller and the Seller Subsidiaries (or upon
revenues, income or profits of any of the Seller and the Seller Subsidiaries
therefrom) or (iv) result in the revocation, cancellation, suspension or
material modification, in any single case or in the aggregate, of any
Governmental Approval possessed by any of the Seller and the Seller Subsidiaries
at the date hereof and necessary for the ownership or lease or the operation of
its properties or the carrying on of its business as now conducted, including
any necessary Governmental Approval under each applicable Environmental Law and
Professional Code.
(d) Except (i) for filings of the Registration Statement under the
Securities Act and the SEC order declaring the Registration Statement effective
under the Securities Act and (ii) as may be required by the HSR Act or the
applicable state securities or blue sky laws, no Governmental Approvals are
required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by any of the Seller and the
Seller Subsidiaries for the execution, delivery or performance by the Seller of
the Transaction Documents to which it is a party, the enforcement against the
Seller of its obligations thereunder or the effectuation of the Acquisition and
the other transactions contemplated thereby.
Section 4.04 CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The Seller has
caused true, complete and correct copies of the Charter Documents, each as in
effect on the date hereof, and the minute books and similar corporate or other
Entity records of each of the Seller and the Seller Subsidiaries to be delivered
or otherwise made available to Apple. No breach or violation of any Charter
Document of any of the Seller and the Seller Subsidiaries has occurred and is
continuing.
Section 4.05 NO DEFAULTS. No condition or state of facts exists, or, with
the giving of notice or the lapse of time or both, would exist, which (a)
entitles any holder of any outstanding Indebtedness, or any Guaranty not
constituting Indebtedness, of any of the Seller and the Seller
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Subsidiaries, or a representative of that holder, to accelerate the maturity, or
require a mandatory prepayment, of that Indebtedness or Guaranty, or affords
that holder or its representative, or any beneficiary of that Guaranty, the
right to require any of the Seller and the Seller Subsidiaries to redeem,
purchase or otherwise acquire, reacquire or repay any of that Indebtedness, or
to perform that Guaranty in whole or in part, (b) entitles any Person to obtain
any Lien (other than a Permitted Lien) upon any properties or assets of any of
the Seller and the Seller Subsidiaries (or upon revenues, income or profits of
any of the Seller and the Seller Subsidiaries therefrom) or (c) constitutes a
violation or breach of, or a default under, any Material Agreement of the Seller
by any of the Seller and the Seller Subsidiaries.
Section 4.06 SELLER SUBSIDIARIES. Section 4.06 of the Disclosure Statement
either (a) accurately sets forth the form of organization, legal name, each
assumed name and Organization State of each Seller Subsidiary or (b) correctly
states no Entity is a Seller Subsidiary. Except as accurately disclosed in
Section 4.06 of the Disclosure Statement, each Seller Subsidiary is a Wholly
Owned Subsidiary. In the case of any Seller Subsidiary that is not a Wholly
Owned Subsidiary, Section 4.06 of the Disclosure Statement accurately sets
forth, by each class and each series within each class, the number of
outstanding shares of Capital Stock of the Seller Subsidiary, (a) the Seller's
aggregate direct and indirect ownership of those shares and (b) the name and
address of record and percentage ownership of those shares of each holder of
record thereof other than the Seller or a Seller Subsidiary. No Lien exists on
any outstanding share of Capital Stock of any Seller Subsidiary which is owned
directly or indirectly by the Seller other than (a) the Liens, if any, described
in Section 4.06 of the Disclosure Statement, all of which will be released at or
before the IPO Closing Date, and (b) Permitted Liens. Except as accurately set
forth in Section 4.06 of the Disclosure Statement, the Seller does not own, of
record or beneficially, directly or indirectly through any Person, and does not
control, directly or indirectly through any Person or otherwise, any Capital
Stock or Derivative Securities of any Entity other than a Seller Subsidiary.
Section 4.07 CAPITAL STOCK OF THE SELLER AND THE SELLER SUBSIDIARIES. All
the issued and outstanding shares of Capital Stock of each of the Seller and the
Seller Subsidiaries (a) have been duly authorized and validly issued in
accordance with the applicable Governmental Requirements of their issuer's
Organization State and Charter Documents and (b) are fully paid and
nonassessable. Neither the Seller nor any Seller Subsidiary has issued or sold
any shares of its outstanding Capital Stock in breach or violation of (a) any
applicable statutory or contractual preemptive rights, or any other rights of
any kind (including any rights of first offer or refusal), of any Person or (b)
the terms of any of its Derivative Securities which then were outstanding. No
Person has, otherwise than solely by reason of that Person's right, if any, to
vote shares of the Capital Stock of the Seller or any Seller Subsidiary it holds
(to the extent those shares afford the holder thereof any voting rights) any
right to vote on any matter with the holders of Capital Stock of the Seller or
any Seller Subsidiary.
Section 4.08 TRANSACTIONS IN CAPITAL STOCK. Except as accurately set forth
in Section 4.08 of the Disclosure Statement: (a) the Seller has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire or reacquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof; and (b) no transaction
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has been effected, and no action in contemplation of the transactions described
in this Agreement has been taken, respecting the equity ownership of either the
Seller or any Seller Subsidiary.
Section 4.09 NO BONUS SHARES. Except as accurately set forth in Section
4.09 of the Disclosure Statement, no outstanding share of Capital Stock of the
Seller was issued for less than the fair market value thereof at the time of
issuance or was issued in exchange for any consideration other than cash.
Section 4.10 PREDECESSOR STATUS; ETC. Section 4.10 of the Disclosure
Statement accurately lists all the legal and assumed names of all predecessor
companies for the past five years of the Seller, including the names of any
Entities from which the Seller previously acquired material assets. Except as
accurately disclosed in Section 4.10 of the Disclosure Statement, the Seller has
not been a Subsidiary or division of another corporation or a part of an
acquisition that later was rescinded.
Section 4.11 RELATED PARTY AGREEMENTS. Except as set forth in Section 4.11
of the Disclosure Statement, each Related Party Agreement in effect on the date
hereof will have been terminated as of the IPO Closing Date.
Section 4.12 LITIGATION. Except as accurately disclosed in Section 4.12 of
the Disclosure Statement, no Litigation is pending or, to the knowledge of the
Seller or any Owner, threatened to which the Seller or any Seller Subsidiary is
or may become a party.
Section 4.13 FINANCIAL STATEMENTS; DISCLOSURE. (a) FINANCIAL STATEMENTS.
(i) The Financial Statements (including in each case the related schedules and
notes) delivered to Apple present fairly, in all material respects, the
consolidated financial position of the Seller and the Seller Subsidiaries at the
respective dates of the balance sheets included therein and the consolidated
results of their operations and their consolidated cash flows and stockholders'
or other owners' equity for the respective periods set forth therein and have
been prepared in accordance with GAAP. As of the date of any balance sheet
included in those Financial Statements, neither the Seller nor any Seller
Subsidiary then had any outstanding Indebtedness to any Person or any
liabilities of any kind (including contingent obligations, tax assessments or
unusual forward or long-term commitments), or any unrealized or anticipated
loss, which in the aggregate then were Material to the Seller and required to be
reflected in those Financial Statements or in the notes related thereto in
accordance with GAAP which were not so reflected.
(ii) Since the Current Balance Sheet Date, no change has occurred in the
business, operations, properties or assets, liabilities, condition (financial or
other) or results of operations of the Seller or any Seller Subsidiary that
could reasonably be expected, either alone or together with all other such
changes, to have a Material Adverse Effect on the Seller.
(iii) All financial budgets and projections that have been or are
hereafter from time to time prepared by the Seller or any of its Representatives
and made available prior to the IPO Closing Date to Apple pursuant to or in
connection with this Agreement, any other Transaction Document or the
transactions contemplated hereby or thereby have been and will be prepared and
furnished to Apple in good faith and were and will be based on facts and
assumptions that
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are believed by the management of the Seller to be reasonable in light of the
then current and foreseeable business conditions of the Seller and the Seller
Subsidiaries and represented and will represent that management's good faith
estimate of the consolidated projected financial performance of the Seller and
the Seller Subsidiaries based on the information available to the Responsible
Officer at the time so furnished.
Section 4.14 COMPLIANCE WITH LAWS. (a) Except as accurately disclosed in
Section 4.14 of the Disclosure Statement: (i) each of the Seller and the Seller
Subsidiaries possesses, if required by the applicable Governmental Requirement,
Governmental Approvals required for the conduct of its business; and (ii) to the
knowledge of the Seller, each of the Seller and the Seller Subsidiaries and such
one or more of its employees are in compliance in all material respects with the
terms and conditions of all Governmental Approvals necessary for the ownership
or lease and the operation of its properties (including all the facilities and
sites it owns or holds under any leases) and the carrying on of its business as
now conducted. The Seller has provided Apple with an accurate, complete written
list of all the Governmental Approvals so possessed. To the knowledge of the
Seller, all the Governmental Approvals so listed are valid, and, except as
accurately disclosed in Section 4.14 of the Disclosure Statement, neither the
Seller nor any Seller Subsidiary has received, nor to the knowledge of any Owner
has any employee of either received, any notice from any Governmental Authority
of its intention to cancel, terminate or not renew any of those Governmental
Approvals.
(b) Except as accurately disclosed in Section 4.14 of the Disclosure
Statement, each of the Seller and the Seller Subsidiaries: (i) to the knowledge
of the Seller, has been and continues to be in compliance with all Governmental
Requirements applicable to it or any of its presently or previously owned or
operated properties (including all the facilities and sites now or previously
owned or held by it under any lease), businesses or operations, including all
applicable Governmental Requirements under ERISA, Environmental Laws and
Professional Codes; and (ii)(A) neither the Seller nor any Seller Subsidiary has
received, nor to the knowledge of the Seller has any employee of either
received, any notice from any Governmental Authority which asserts, or raises
the possibility of assertion of, any noncompliance with any of those
Governmental Requirements and, to the knowledge of each of the Seller, the
Seller Subsidiaries and the Owners, (B) no condition or state of facts exists
which would provide a valid basis for any such assertion.
Section 4.15 CERTAIN ENVIRONMENTAL MATTERS. Except as accurately disclosed
in Section 4.15 of the Disclosure Statement: (a) to the knowledge of the Seller,
the Seller and each Seller Subsidiary have complied, and remain in compliance,
to the knowledge of the Seller, with the provisions of all Environmental Laws
applicable to any of them or any of their respective presently owned or operated
facilities, sites or other properties, businesses and operations and which
relate to the reporting by the Seller and each Seller Subsidiary of all sites
presently owned or operated by any of them where Solid Wastes, Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (b) no release (as defined in those Environmental Laws) at, from, in or
on any site owned or operated by the Seller or any Seller Subsidiary has
occurred which, if all relevant facts were known to the relevant Governmental
Authorities, reasonably could be expected to require remediation to avoid deed
record notices, restrictions, liabilities or other consequences that would not
be applicable if that release had not
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occurred; (c) neither the Seller nor any Seller Subsidiary (or any agent or
contractor of either) has transported or arranged for the transportation of any
Solid Wastes, Hazardous Wastes or Hazardous Substances to, or disposed or
arranged for the disposition of any Solid Wastes, Hazardous Wastes or Hazardous
Substances at, any off-site location that could lead to any claim against the
Seller, any Seller Subsidiary or Apple, as a potentially responsible party or
otherwise, for any clean-up costs, remedial work, damage to natural resources,
personal injury or property damage, including any claim under CERCLA; and (d) no
storage tanks exist on or under any of the properties owned or operated by the
Seller or any Seller Subsidiary from which any Solid Wastes, Hazardous Wastes or
Hazardous Substances have been released into the surrounding environment. The
Seller has provided Apple with copies (or if not available, accurate written
summaries) of all environmental investigations, studies, audits, reviews and
other analyses conducted by or on behalf, or which otherwise are in the
possession, of the Seller or any Seller Subsidiary respecting any facility, site
or other property presently owned or operated by the Seller and each Seller
Subsidiary.
Section 4.16 LIABILITIES AND OBLIGATIONS. Section 4.16 of the Disclosure
Statement accurately lists all present liabilities, of every kind, character and
description and whether accrued, absolute, fixed, contingent or otherwise, of
each of the Seller and the Seller Subsidiaries which (a) (i) exceed or
reasonably could be expected to exceed $1,000 and (ii) (A) had been incurred
prior to the Current Balance Sheet Date, but are not reflected on the Current
Balance Sheet, or (B) were incurred after the Current Balance Sheet otherwise
than in the ordinary course of business, and consistent with the past practice,
of that Entity. That Section also accurately lists and describes, for each of
the Seller and the Seller Subsidiaries: (a) each of its outstanding secured and
unsecured Guaranties not constituting its Indebtedness and, for each of those
Guaranties, whether any Owner or Related Person or Affiliate of any Owner is a
Person whose obligation is covered by that Guaranty, and (b) for each of the
items listed under clause (a) of this sentence, (i) if that item is secured by
any property or asset of the Seller or any Seller Subsidiary, the nature of that
security, and (ii) if that item is covered in whole or in part by a Guaranty of
any Owner or any Related Person or Affiliate of any Owner, the name of the
guarantor.
Section 4.17 RECEIVABLES. Except as accurately set forth in Section 4.17
of the Disclosure Statement; all the accounts and notes or other advances
receivable of the Seller and the Seller Subsidiaries reflected on the Current
Balance Sheet were collected, or are, in the good faith belief of the Seller's
management, collectible, in the respective amounts so reflected, net of the
reserves, if any, reflected in the Current Balance Sheet.
Section 4.18 OWNED AND LEASED REAL PROPERTIES. (a) Section 4.18 of the
Disclosure Statement accurately lists and correctly describes in all material
respects: (i) all real properties owned by any of the Seller and the Seller
Subsidiaries and, for each of those properties, the address thereof, the type
and square footage of each structure located thereon and the use thereof in the
business of the Seller and the Seller Subsidiaries; (ii) all real properties of
which any of the Seller and the Seller Subsidiaries is the lessee and, for each
of those properties, the address thereof, the type and square footage of each
structure located thereon the Seller or a Seller Subsidiary is leasing and the
expiration date of its lease and the use thereof in the business of the Seller
and the Seller Subsidiaries; and (iii) in the case of each real property listed
as being
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owned, whether it was previously owned, and in the case of each real property
listed as being leased, whether it is presently owned, by any Owner or any of
his or the Seller's Related Persons or Affiliates (other than the Seller and the
Seller Subsidiaries, if the Owner is an Affiliate of the Seller).
(b) The Seller has provided Apple with true, complete and correct copies
of all title reports and insurance policies owned or in the possession of any of
the Seller and the Seller Subsidiaries and relating to any of the real
properties listed as being owned in Section 4.18 of the Disclosure Statement.
Except as accurately set forth in that Section or those reports and policies,
and except for Permitted Liens, the Seller or a Seller Subsidiary owns in fee,
and has good, valid and marketable title to, free and clear of all Liens, the
Acquired Assets.
(c) The Seller has provided Apple with true, correct and complete copies
of all leases under which the Seller or a Seller Subsidiary is leasing each of
the properties listed in Section 4.18 of the Disclosure Statement as being
leased and, except as accurately set forth in Section 4.18 of the Disclosure
Statement, (i) each of those leases is, to the knowledge of the Seller, valid
and binding on the lessor party thereto, and (ii) the lessee party thereto has
not sublet any of the leased space to any Person other than the Seller or a
Seller Subsidiary.
(d) The fixed assets of each of the Seller and the Seller Subsidiaries are
affixed only to one or more of the real properties listed in Section 4.18 of the
Disclosure Statement and, except as accurately set forth in that Section, are
well-maintained and adequate for the purposes for which they presently are being
used or held for use, ordinary wear and tear excepted.
(e) The Seller has accurately disclosed in Section 4.18 of the Disclosure
Statement in all material respects all plans or projects involving the opening
of new operations, the expansion of any existing operations or the acquisition
of any real property or existing business, with respect to which management of
the Seller or any Seller Subsidiary has made any expenditure in the two-year
period prior to the date of the Agreement in excess of $1,000, or which if
pursued by the Seller or any Seller Subsidiary would require additional capital
expenditures in excess of $1,000.
Section 4.19 OWNED AND LEASED PROPERTY, PLANT AND EQUIPMENT. (a) The
Seller has provided Apple with a list accurate and complete in all material
respects of the Property, Plant and Equipment owned and leased by any of the
Seller and the Seller Subsidiaries, which list states, in the case of each of
those properties listed as being owned, whether it was previously owned, and in
the case of each of those properties listed as being leased, whether it is
presently owned, by any Owner or any of his or the Seller's Related Persons or
Affiliates (other than the Seller and the Seller Subsidiaries, if the Owner is
an Affiliate of the Seller).
(b) Except as accurately set forth in Section 4.19 of the Disclosure
Statement and except for Permitted Liens, the Seller or a Seller Subsidiary has
good, valid and marketable title to, free and clear of all Liens, the Acquired
Assets.
(c) The Seller has provided Apple with true, correct and complete copies
of all leases under which the Seller or a Seller Subsidiary is leasing each of
the properties listed in Section
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4.21 of the Disclosure Statement as being leased and all leases referred to in
Section 4.19 and, except as accurately set forth in Section 4.19 of the
Disclosure Statement, (i) each of those leases is, to the knowledge of the
Seller, valid and binding on the lessor party thereto, and (ii) the lessee party
thereto has not sublet any of the leased property to any Person other than the
Seller or a Seller Subsidiary.
(d) Except as accurately set forth in Section 4.19 of the Disclosure
Statement, all the Property, Plant and Equipment are in good working order and
condition, ordinary wear and tear excepted, and adequate for the purposes for
which they presently are being used or held for use.
Section 4.20 PROPRIETARY RIGHTS. Except as accurately set forth in Section
4.20 of the Disclosure Statement, each of the Seller and the Seller Subsidiaries
owns or has the legal right to use all Proprietary Rights that are necessary to
the conduct of its business as now conducted, in each case free of any claims or
infringements known to the Seller or any Owner. Section 4.20 of the Disclosure
Statement accurately (a) lists these Proprietary Rights and (b) indicates those
owned by the Seller or any Seller Subsidiary and, for those not listed as so
owned, the agreement or other arrangement pursuant to which they are possessed.
Except as accurately set forth in that Section, (a) no consent of any Person
will be required for the use of any of these Proprietary Rights by Apple or any
Subsidiary of Apple following the IPO Closing Date and (b) no governmental
registration of any of these Proprietary Rights has lapsed or expired or been
canceled, abandoned, opposed or the subject of any reexamination request.
Section 4.21 TITLE TO OTHER PROPERTIES. In each case, free and clear of
all Liens except for Permitted Liens and as accurately set forth in Section 4.21
of the Disclosure Statement, each of the Seller and the Seller Subsidiaries has
good and valid title to, or holds under a lease valid and binding on the lessor
party thereto, all its tangible personal properties and assets (other than
Property, Plant and Equipment) that individually is or in the aggregate are
Material to the Seller.
Section 4.22 COMMITMENTS. (a) Except as accurately set forth in Section
4.22(a) of the Disclosure Statement, the Seller has provided Apple with a
complete, accurate list of each of the following (each a "Seller Commitment") to
which any of the Seller and the Seller Subsidiaries is a party or by which any
of its properties is bound and which presently remains executory in whole or in
any part:
(i) each partnership, joint venture or cost-sharing
agreement;
(ii) each guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iii) each instrument, agreement or other obligation
evidencing or relating to Indebtedness of any of the
Seller and the Seller Subsidiaries or to money lent or
to be lent to another Person;
(iv) each contract to purchase or sell real property;
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(v) each agreement with dealers or sales or commission
agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with
this Agreement and the transactions contemplated hereby)
involving total payments within any 12-month period in
excess of $5,000 and which is not terminable without
penalty and on no more than 30 days' prior notice;
(vi) each Related Party Agreement involving total payments
within any 12-month period in excess of $1,000 and which
is not terminable without penalty on no more than 30
days' prior notice;
(vii) each agreement for the acquisition or provision of
services, supplies, equipment, inventory, fixtures or
other property involving more than $1,000 in the
aggregate;
(viii) each contract containing any noncompetition agreement,
covenant or undertaking;
(ix) each agreement providing for the purchase from a
supplier of all or substantially all the requirements of
the Seller or any Seller Subsidiary of a particular
product or service; or
(x) each other agreement or commitment not made in the
ordinary course of business or that is Material to the
Seller.
True, correct and complete copies of all written Seller Commitments, and
true, correct and complete written descriptions of all oral Seller Commitments,
have heretofore been delivered or made available to Apple. Except as accurately
set forth in Section 4.22(a) of the Disclosure Statement: (i) there are no
existing or asserted defaults, events of default or events, occurrences, acts or
omissions that, with the giving of notice or lapse of time or both, would
constitute defaults or events of default under any Seller Commitment Material to
the Seller by any of the Seller and the Seller Subsidiaries or, to the knowledge
of the Seller, any other party thereto; and (ii) no penalties have been
incurred, nor are amendments pending, with respect to the Owner Seller
Commitments Material to the Seller. The Seller Commitments are in full force and
effect and are valid and enforceable obligations of the Seller or the Seller
Subsidiaries parties thereto and, to the knowledge of the Seller, the other
parties thereto in accordance with their respective terms, and no defenses,
off-sets or counterclaims have been asserted or, to the knowledge of the Seller,
may be made by any party thereto (other than by the Seller or a Seller
Subsidiary), nor has the Seller or a Seller Subsidiary, as the case may be,
waived any rights thereunder, except as accurately described in Section 4.22(a)
of the Disclosure Statement.
(b) Except as accurately disclosed in Section 4.22(b) of the Disclosure
Statement or contemplated hereby or by any other Transaction Document to which
the Seller or any Seller Subsidiary or Oener is a party: (i) neither the Seller
nor any Seller Subsidiary or Owner has
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received notice of any plan or intention of any other party to any Seller
Commitment to exercise any right to cancel or terminate any Seller Commitment,
and neither the Seller nor any Seller Subsidiary or Owner knows of any condition
or state of facts which would justify the exercise of such a right; and (ii)
neither the Seller nor any Seller Subsidiary or Owner currently contemplates, or
has reason to believe any other Person currently contemplates, any amendment or
change to any Seller Commitment.
Section 4.23 CAPITAL EXPENDITURES. Section 4.23 of the Disclosure
Statement accurately sets forth the total amount of capital expenditures
currently budgeted to be incurred by the Seller and the Seller Subsidiaries
during the balance of the Seller's current fiscal year. Except as accurately set
forth in that Section, to the knowledge of the Seller and the Owners, no
condition or state of facts exists which will cause the total capital
expenditures of the Seller and the Seller Subsidiaries which will be required to
replace worn-out Property, Plant and Equipment in any of the Seller's five
fiscal years following that current fiscal year to exceed by a material amount
the amount budgeted for capital expenditures of that type by the Seller and the
Seller Subsidiaries for that current fiscal year in order to maintain the types
and levels of patients and services the Seller and the Seller Subsidiaries
presently provide.
Section 4.24 INVENTORIES. Except as accurately set forth in Section 4.24
of the Disclosure Statement: (a) all inventories, net of reserves determined in
accordance with GAAP, of each of the Seller and the Seller Subsidiaries which
are classified as such on the Current Balance Sheet are, to the knowledge of the
Seller, merchantable and salable or usable in the ordinary course of business of
the Seller and the Seller Subsidiaries; (b) the inventories reflected in the
Financial Statements, as at the Current Balance Sheet Date, (i) were reasonable
in relation to the then existing circumstances of the Seller and the Seller
Subsidiaries on a consolidated basis and classified as current assets in
accordance with GAAP, (ii) were consistent with their past practices and (iii)
fairly reflected the average inventory levels maintained during the 12-month
periods ended on that date; and (c) neither the Seller nor any Seller Subsidiary
depends on any single vendor for its inventories the loss of which could have a
Material Adverse Effect on the Seller or ever has sustained a difficulty
Material to the Seller in obtaining its inventories.
Section 4.25 INSURANCE. Except as accurately set forth in Section 4.25 of
the Disclosure Statement: (a) the Seller has provided Apple with: (i) a list
accurate as of the Current Balance Sheet Date of all insurance policies then
carried by each of the Seller and the Seller Subsidiaries; (ii) an accurate list
of all insurance loss runs and worker's compensation claims received for the
most recently ended three policy years; and (iii) true, complete and correct
copies of all insurance policies carried by each of the Seller and the Seller
Subsidiaries which are in effect, all of which (A) have been issued by insurers
of recognized responsibility and (B) currently are, and will remain without
interruption through the IPO Closing Date, in full force and effect; (b) no
insurance carried by the Seller or any Seller Subsidiary has been canceled by
the insurer during the past five years, and neither the Seller nor any Seller
Subsidiary has ever been denied coverage; and (c) neither the Seller nor any
Seller Subsidiary or Owner has received any notice or other communication from
any issuer of any such insurance policy of any material increase in any
deductibles, retained amounts or the premiums payable thereunder, and, to the
knowledge of the Seller and the Owners, no such increase in deductibles,
retainages or premiums is threatened.
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Section 4.26 EMPLOYEE MATTERS. (a) CASH COMPENSATION. The Seller has
provided Apple with an accurate, complete written list of the names, titles and
rates of annual Cash Compensation, at the Current Balance Sheet Date and at the
date hereof (and the portions thereof attributable to salary or the equivalent,
fixed bonuses, discretionary bonuses and other Cash Compensation, respectively)
of all employees (including all employees who are officers or directors),
nonemployee officers, nonemployee directors and key consultants and independent
contractors of each of the Seller and the Seller Subsidiaries.
(b) EMPLOYMENT AGREEMENTS . Section 4.26(b) of the Disclosure Statement
accurately lists all Employment Agreements remaining executory in whole or in
part on the date hereof, and the Seller has provided Apple with true, complete
and correct copies of all those Employment Agreements. Neither the Seller nor
any Seller Subsidiary is a party to any oral Employment Agreement.
(c) OTHER COMPENSATION PLANS. Section 4.26(c) of the Disclosure Statement
accurately lists all Other Compensation Plans either remaining executory at the
date hereof or to become effective after the date hereof. The Seller has
provided Apple with a true, correct and complete copy of each of those Other
Compensation Plans that is in writing and an accurate description of each of
those Other Compensation Plans that is not written. Except as accurately set
forth in Section 4.26(c) of the Disclosure Statement, each of the Other
Compensation Plans, including each that is a Welfare Plan, may be unilaterally
amended or terminated by the Seller or any Seller Subsidiary without liability
to any of them, except as to benefits accrued thereunder prior to that amendment
or termination.
(d) ERISA BENEFIT PLANS. Section 4.26(d) of the Disclosure Statement
accurately (i) lists each ERISA Pension Benefit Plan (A)(1) the funding
requirements of which (under Section 301 of ERISA or Section 412 of the Code)
are, or at any time during the six-year period ending on the date hereof were,
in whole or in part, the responsibility of the Seller or any Seller Subsidiary
or (2) respecting which the Seller or any Seller Subsidiary is, or at any time
during that period was, a "contributing sponsor" or an "employer" as defined in
Sections 4001(a)(13) and 3(5), respectively, of ERISA (each plan described in
this clause (A) being a "Seller ERISA Pension Plan"), (B) each other ERISA
Pension Benefit Plan respecting which an ERISA Affiliate is, or at any time
during that period was, such a "contributing sponsor" or "employer" (each plan
described in this clause (B) being an "ERISA Affiliate Pension Plan") and (C)
each other ERISA Employee Benefit Plan that is being, or at any time during that
period was, sponsored, maintained or contributed to by the Seller or any Seller
Subsidiary (each plan described in this clause (C) and each Seller ERISA Pension
Plan being a "Seller ERISA Benefit Plan"), (ii) states the termination date of
each Seller ERISA Benefit Plan and ERISA Affiliate Pension Plan that has been
terminated and (iii) identifies for each ERISA Affiliate Pension Plan the
relevant ERISA Affiliates. The Seller has provided Apple with (i) true, complete
and correct copies of (A) each Seller ERISA Benefit Plan and ERISA Affiliate
Pension Plan, (B) each trust agreement related thereto and (C) all amendments to
those plans and trust agreements. Except as accurately set forth in Section
4.26(d) of the Disclosure Statement, (i) neither the Seller nor any Seller
Subsidiary is, or at any time during the six-year period ended on the date
hereof was, a member of any ERISA Group that currently includes, or included
when the Seller or a Seller Subsidiary was a member, among its members any
Person other than the Seller and the Seller
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Subsidiaries and (ii) no Person is an ERISA Affiliate of the Seller or any
Seller Subsidiary (other than the Seller or any Seller Subsidiary in the case of
any other Seller Subsidiary or any Seller Subsidiary in the case of the Seller,
if the Seller and the Seller Subsidiaries comprise an ERISA Group).
(e) EMPLOYEE POLICIES AND PROCEDURES. Section 4.26(e) of the Disclosure
Statement accurately lists all Employee Policies and Procedures. The Seller has
provided Apple with a copy of all written Employee Policies and Procedures and a
written description of all material unwritten Employee Policies and Procedures.
(f) UNWRITTEN AMENDMENTS. Except as accurately described in Section
4.26(f) of the Disclosure Statement, no material unwritten amendments have been
made, whether by oral communication, pattern of conduct or otherwise, with
respect to any of the Employment Agreements, Other Compensation Plans or
Employee Policies and Procedures.
(g) LABOR COMPLIANCE. To the knowledge of the Seller, each of the Seller
and the Seller Subsidiaries has been and is in compliance with all applicable
Governmental Requirements respecting employment and employment practices, terms
and conditions of employment and wages and hours, and neither the Seller nor any
Seller Subsidiary is liable for any arrears of wages or penalties for failure to
comply with any of the foregoing. Neither the Seller nor any Seller Subsidiary
has engaged in any unfair labor practice or discriminated on the basis of race,
color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices. Except as accurately set forth in Section
4.26(g) of the Disclosure Statement, there are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, age,
disability or handicap discrimination charges or complaints pending or, to the
knowledge of the Seller, threatened against the Seller or any of the Seller
Subsidiaries before any Governmental Authority (nor, to the knowledge of the
Seller, does any valid basis therefor exist) or (ii) existing or, to the
knowledge of the Seller, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Seller or any of the Seller
Subsidiaries (nor, to the knowledge of the Seller, does any valid basis therefor
exist).
(h) UNIONS. Neither the Seller nor any Seller Subsidiary or ERISA
Affiliate has ever been a party to any agreement with any union, labor
organization or collective bargaining unit. No employees of the Seller and the
Seller Subsidiaries are represented by any union, labor organization or
collective bargaining unit. Except as accurately set forth in Section 4.26(h) of
the Disclosure Statement, to the knowledge of the Seller, none of the employees
of the Seller and the Seller Subsidiaries has threatened to organize or join a
union, labor organization or collective bargaining unit.
(i) NO ALIENS. All employees of each of the Seller and the Seller
Subsidiaries are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
(j) CHANGE OF CONTROL BENEFITS. Except as accurately set forth in Section
4.26(j) of the Disclosure Statement, neither the Seller nor any of the Seller
Subsidiaries is a party to any agreement, or has established any policy,
practice or program, requiring it to
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make a payment or provide any other form of compensation or benefit or vesting
rights to any person performing services for the Seller or any of the Seller
Subsidiaries which would not be payable or provided in the absence of this
Agreement or the consummation of the transactions contemplated by this
Agreement, including any parachute payment under Section 280G of the Code.
(k) RETIREES. Neither the Seller nor any of the Seller Subsidiaries has
any obligation or commitment to provide medical, dental or life insurance
benefits to or on behalf of any of its employees who may retire or any of its
former employees who have retired except as may be required pursuant to the
continuation of coverage provisions of Section 4980B of the Code and the
applicable parallel provisions of ERISA.
Section 4.27 COMPLIANCE WITH ERISA, ETC. (a) COMPLIANCE. Each of the
Seller ERISA Benefit Plans and Other Compensation Plans (each, a "Plan") (i) is
in substantial compliance with all applicable provisions of ERISA, as well as
with all other applicable Governmental Requirements, and (ii) has been
administered, operated and managed in accordance with its governing documents.
(b) QUALIFICATION. All Plans that are intended to qualify under Section
401(a) of the Code (the "Qualified Plans") are so qualified and have been
determined by the IRS to be so qualified (or application for determination
letters have been timely submitted to the IRS). The Seller has provided Apple
with true, complete and correct copies of the current plan determination
letters, most recent actuarial valuation reports, if any, most recent Form 5500,
or, as applicable, Form 5500-C/R, filed with respect to each such Qualified Plan
and most recent trustee or custodian report. To the extent that any Qualified
Plans have not been amended to comply with applicable Governmental Requirements,
the remedial amendment period permitting retroactive amendment of these
Qualified Plans has not expired and will not expire within 120 days after the
IPO Closing Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including annual reports, summary annual reports, actuarial reports, PBGC-1
Forms, audits or Returns) have been timely filed or distributed.
(c) NO PROHIBITED TRANSACTIONS, ETC. None of the Owners, any Plan or the
Seller or any Seller Subsidiary has engaged in any Prohibited Transaction. No
Plan has incurred an accumulated funding deficiency, as defined in Section
412(a) of the Code and Section 302(a) of ERISA, and no circumstances exist
pursuant to which the Seller or any Seller Subsidiary could have any direct or
indirect liability whatsoever (including being subject to any statutory Lien to
secure payment of any such liability), to the PBGC under Title IV of ERISA or to
the IRS for any excise tax or penalty with respect to any Plan now or hereafter
maintained or contributed to by the Seller or any of its ERISA Affiliates.
Further:
(i) there have been no terminations, partial terminations or
discontinuances of contributions to any Qualified Plan
without a determination by the IRS that such action does
not adversely affect the tax-qualified status of that
plan;
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(ii) no Termination Event has occurred;
(iii) no Reportable Event has occurred with respect to any
Plan which was not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
IPO Closing Date, shall equal or exceed the actuarial
present value of all "benefit liabilities" (within the
meaning of Section 40001(a)(16) of ERISA) under that
plan in accordance with the assumptions contained in the
Regulations of the PBGC governing the funding of
terminated defined benefit plans;
(v) with respect to Plans qualifying as "group health plans"
under Section 4980B of the Code or Section 607(l) or 609
of ERISA and related regulations (relating to the
benefit continuation rights imposed by COBRA or
qualified medical child support orders), the Seller,
each Seller Subsidiary and the Owners, have complied
(and at the IPO Closing Date will have complied) in all
material respects with all reporting, disclosure,
notice, election and other benefit continuation and
coverage requirements imposed thereunder as and when
applicable to those plans, and neither the Seller nor
any Seller Subsidiary has incurred (or will incur) any
direct or indirect liability and will not be subject to
any loss, assessment, excise tax penalty, loss of
federal income tax deduction or other sanction, arising
on account of or in respect of any direct or indirect
failure by the Seller, any Seller Subsidiary or any
Owner, at any time prior to the IPO Closing Date, to
comply with any such federal or state benefit
continuation or coverage requirement, which is capable
of being assessed or asserted before or after the IPO
Closing Date directly or indirectly against the Seller,
any Seller Subsidiary, any Owner or Apple with respect
to any of those group health plans;
(vi) the Financial Statements as of the Current Balance Sheet
Date reflect the approximate total unfunded (or
uninsured) pension, medical and other benefit liability
for all Plans determined in accordance with accounting
principles and actuarial assumptions consistently
applied in the on-going administration of the Plans;
and, and no material funding changes or irregularities
are reflected thereon which would cause those Financial
Statements to be not representative of prior periods;
and
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(vii) neither the Seller nor any Seller Subsidiary has
incurred liability under Section 4062 of ERISA.
(d) MULTIEMPLOYER PLANS. Except as set forth in Section 4.27(d) of the
Disclosure Statement, neither the Seller nor any Seller Subsidiary, and no ERISA
Affiliate of any of them, is, or at any time during the six-year period ended on
the date hereof was, obligated to contribute to a Multiemployer Plan. Neither
the Seller nor any Seller Subsidiary, and no ERISA Affiliate of any of them, has
made a complete or partial withdrawal from a Multiemployer Plan so as to incur
withdrawal liability as defined in Section 4201 of ERISA.
(e) CLAIMS AND LITIGATION. Except as accurately set forth in Section
4.27(e) of the Disclosure Statement, no Litigation or claims (other than routine
claims for benefits) are pending or, to the knowledge of the Seller, threatened
against, or with respect to, any of the Plans or with respect to any fiduciary,
administrator or sponsor thereof (in their capacities as such), or any
party-in-interest thereof.
(f) EXCISE TAXES, DAMAGES AND PENALTIES. No act, omission or transaction
has occurred which would result in the imposition on the Seller or any Seller
Subsidiary of (i) breach of fiduciary duty liability damages under Section 409
of ERISA, (ii) a civil penalty assessed pursuant to subsection (c), (i) or (l)
of Section 502 of ERISA or (iii) any excise tax under applicable provisions of
the Code with respect to any Plan.
(g) VEBA WELFARE TRUST. Any trust funding a Plan, which is intended to be
exempt from federal income taxation pursuant to Section 501(c)(9) of the Code,
satisfies the requirements of that section and has received a favorable
exemption letter from the IRS regarding that exempt status and has not, since
receipt of the most recent favorable exemption letter, been amended or operated
in a way that would adversely affect that exempt status. The value of assets of
each trust described in the Section 4.27(g) equals or exceeds the value of
benefit liabilities of such trust (or related Plan) determined in accordance
with actuarial assumptions consistently applied in the on-going administration
of such trust (or related Plan).
Section 4.28 TAXES. (a) Each of the following representations and
warranties in this Section 4.28 is qualified to the extent set forth in Section
4.28 of the Disclosure Statement.
(b) All Returns required to be filed with respect to any Tax for which any
of the Seller and the Seller Subsidiaries is liable have been duly and timely
(taking into account applicable extensions) filed with the appropriate Taxing
Authority, all such Returns were correct and complete in all material respects,
all Taxes that have become due from the Seller have been paid, each Tax payable
by the Seller or a Seller Subsidiary by assessment has been timely paid in the
amount assessed and adequate reserves have been established on the books of the
Seller and the Seller Subsidiaries for all Taxes for which any of the Seller and
the Seller Subsidiaries is liable, but the payment of which is not yet due.
Neither the Seller nor any Seller Subsidiary is, or ever has been, liable for
any Tax payable by reason of the income or property of a Person other than the
Seller or a Seller Subsidiary. Each of the Seller and the Seller Subsidiaries
has timely filed true, correct and complete declarations of estimated Tax in
each jurisdiction in which any such declaration is required to be filed by it.
No Liens for Taxes exist upon the
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assets of the Seller or any Seller Subsidiary except Liens for Taxes which are
not yet due. Neither the Seller nor any Seller Subsidiary is, or ever has been,
subject to Tax in any jurisdiction outside of the United States. No Litigation
with respect to any Tax for which the Seller or any Seller Subsidiary is
asserted to be liable is pending or, to the knowledge of the Seller or any
Owner, threatened and no basis which the Seller or any Owner believes to be
valid exists on which any claim for any such Tax can be asserted against the
Seller or any Seller Subsidiary. There are no requests for rulings or
determinations in respect of any Taxes pending between the Seller or any Seller
Subsidiary and any Taxing Authority. No extension of any period during which any
Tax may be assessed or collected and for which the Seller or any Seller
Subsidiary is or may be liable has been granted to any Taxing Authority. Neither
the Seller nor any Seller Subsidiary is or has been a party to any tax
allocation or sharing agreement. All amounts required to be withheld by any of
the Seller and the Seller Subsidiaries and paid to governmental agencies for
income, social security, unemployment insurance, sales, excise, use and other
Taxes have been collected or withheld and paid to the proper Taxing Authority.
The Seller and each Seller Subsidiary have made all deposits required by law to
be made with respect to employees' withholding and other employment taxes.
(c) Neither the Seller nor any Owner is a "foreign person," as that term
is referred to in Section 1445(f)(3) of the Code.
(d) The Seller has not filed a consent pursuant to Section 341(f) of the
Code or any comparable provision of any other Tax statute nor has agreed to have
Section 341(f)(2) of the Code or any comparable provision of any other Tax
statute apply to any disposition of an asset. The Seller has not made, is not
obligated to make and is not a party to any agreement that could require it to
make any payment that is not or would not be deductible under Section 280G of
the Code. No asset of the Seller or of any Seller Subsidiary is subject to any
provision of applicable law which eliminates or reduces the allowance for
depreciation or amortization in respect of that asset below the allowance
generally available to an asset of its type. No accounting method changes of the
Seller or of any Seller Subsidiary exist or are proposed or threatened which
could give rise to an adjustment under Section 481 of the Code.
Section 4.29 GOVERNMENT CONTRACTS. Except as accurately set forth in
Section 4.29 of the Disclosure Statement, neither the Seller nor any Seller
Subsidiary is a party to any governmental contract subject to price
redetermination or renegotiation.
Section 4.30 ABSENCE OF CHANGES. Since the Current Balance Sheet Date,
except as accurately set forth in Section 4.30 of the Disclosure Statement, none
of the following has occurred with respect to the Seller or any Seller
Subsidiary:
(a) any circumstance, condition, event or state of facts (either singly or
in the aggregate), other than conditions generally affecting the business of
providing orthodontic care to patients, which has caused, is causing or will
cause a Material Adverse Effect on the Seller;
(b) any change in its authorized Capital Stock or in any of its
outstanding Capital Stock or Derivative Securities;
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(c) any Restricted Payment;
(d) any increase in, or any commitment or promise to increase, the rates
of Cash Compensation as of the date hereof, or the amounts or other benefits
paid or payable under any Seller ERISA Pension Plan or Other Compensation Plan,
except for ordinary and customary bonuses and salary increases for employees
(other than the Owners or their Immediate Family Members) at the times and in
the amounts consistent with its past practice;
(e) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, that will have a Material Adverse
Effect on Newco following the IPO Closing Date;
(f) any distribution, sale or transfer of, or any Seller Commitment to
distribute, sell or transfer, any of its assets or properties of any kind which
singly is or in the aggregate are Material to the Seller, other than
distributions, sales or transfers in the ordinary course of its business and
consistent with its past practices to Persons other than the Owners and their
Immediate Family Members and Affiliates;
(g) any cancellation, or agreement to cancel, any Indebtedness, obligation
or other liability owing to it, including any Indebtedness, obligation or other
liability of any Owner or any Related Person or Affiliate thereof, provided that
it may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, if all those adjustments
are included in the Supplemental Information provided Apple pursuant to Section
6.08;
(h) any plan, agreement or arrangement granting any preferential rights to
purchase or acquire any interest in any of its assets, property or rights or
requiring consent of any Person to the transfer and assignment of any such
assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the ordinary
course of its business consistent with its past practices;
(j) any waiver of any of its rights or claims that singly is or in the
aggregate are Material to the Seller;
(k) any transaction by it outside the ordinary course of its business or
not consistent with its past practices;
(l) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Seller Commitment to incur any
Indebtedness or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities or
Indebtedness of any Person other than a Permitted Investment;
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(n) except in accordance with the Seller's consolidated capital
expenditure budget for the Seller's current fiscal year, any capital expenditure
or series of related capital expenditures by the Seller and the Seller
Subsidiaries collectively in excess of $5,000, or commitments by the Seller and
the Seller Subsidiaries to make capital expenditures totaling in excess of
$5,000; or
(o) any cancellation or termination of a Material Agreement of the Seller.
Section 4.31 BANK RELATIONS; POWERS OF ATTORNEY. The Seller has provided
Apple with an accurate, complete written statement setting forth:
(a) the name of each financial institution in which the Seller or any
Seller Subsidiary has borrowing or investment arrangements, deposit or checking
accounts or safe deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or box
numbers and the name of each Person authorized to draw thereon or have access
thereto; and
(c) the name of each Person holding a general or special power of attorney
from the Seller or any Seller Subsidiary and a description of the terms of each
such power.
Section 4.32 RELATIONS WITH GOVERNMENTS, ETC. Neither the Seller nor any
Seller Subsidiary has made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office which
would cause the Seller or any Seller Subsidiary to be in violation of the
Foreign Corrupt Practices Act of 1977 or any Governmental Requirement to a
similar effect.
Section 4.33 PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the right of
the Seller to receive shares of Apple Common Stock as a result of the
Acquisition or to acquire Apple Common Stock pursuant to any written option
granted by Apple to the Seller, the Seller either (a) does not own or otherwise
have any statutory or contractual preemptive or other right of any kind
(including any right of first offer or refusal) to acquire any shares of Apple
Common Stock or interests in Seller or (b) hereby irrevocably waives each right
of that type the Seller does own or otherwise has.
Section 4.34 RELIANCE ON REPRESENTATIVES. Each Owner is solely relying on
his own Representatives (including his own legal counsel and accountant) as to
legal, tax and related matters concerning the transaction contemplated by this
Agreement and is in no way relying on Apple or Apple's Representatives
(including Apple's legal counsel and account) as to such legal, tax and related
matters. Further, such Owner acknowledges that neither Apple nor Apple's
Representatives have made any representations regarding the tax treatment of the
transactions contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.02 ORGANIZATION; POWER. Apple is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and Apple has all requisite corporate power and authority under the laws of its
Organization State and its Charter Documents to own or lease and to operate its
properties presently and following the IPO Closing Date and to carry on its
business as now conducted and as proposed to be conducted following the IPO
Closing Date. Apple has not engaged in any operations since its organization
other than in connection with their formation and capitalization and the
transactions contemplated by this Agreement and the Other Agreements.
Section 5.03 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS; REQUIRED
CONSENTS. (a) The execution, delivery and performance by Apple of this Agreement
and each other Transaction Document to which it is a party, and the effectuation
of the Acquisition and the other transactions contemplated hereby and thereby,
are within its corporate power under its Charter Documents and the applicable
Governmental Requirements of its Organization State and have been duly
authorized by all proceedings, including actions permitted to be taken in lieu
of proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction Documents
to which Apple is a party, when executed and delivered to the other parties
thereto, will have been, duly executed and delivered by it and is, or when so
executed and delivered will be, its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as that
enforceability may be (i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law).
(c) The execution, delivery and performance in accordance with their
respective terms by Apple of the Transaction Documents to which it is a party
have not and will not (i) violate, breach or constitute a default under (A) the
Charter Documents of Apple, (B) any Governmental Requirement applicable to Apple
or (C) any Material Agreement of Apple, (ii) result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not constituting
Indebtedness, of Apple or afford any holder of any of that Indebtedness, or any
beneficiary of any of those Guaranties, the right to require Apple to redeem,
purchase or otherwise acquire, reacquire or repay any of that Indebtedness, or
to perform any of those Guaranties, (iii) cause or result in the imposition of,
or afford any Person the right to obtain, any Lien upon any property or assets
of Apple (or upon any revenues, income or profits of Apple therefrom) or (iv)
result in the revocation, cancellation, suspension or material modification, in
any single case or in the aggregate, of any Governmental Approval possessed by
Apple at the date hereof and necessary for the ownership or lease and the
operation of its properties or the carrying on of its business as now conducted,
including any necessary Governmental Approval under each applicable
Environmental Law and Professional Code.
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(d) Except for (i) filings of the Registration Statement under the
Securities Act and the SEC order declaring the Registration Statement effective
under the Securities Act and (ii) as may be required by the HSR Act or the
applicable state securities or blue sky laws, no Governmental Approvals are
required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by Apple for the execution,
delivery or performance by Apple of the Transaction Documents to which it is a
party, the enforcement against Apple of its obligations thereunder or the
effectuation of the Acquisition and the other transactions contemplated thereby.
Section 5.04 CHARTER DOCUMENTS. Apple has, or will have prior to the IPO
Pricing Date, delivered to the Seller true, complete and correct copies of the
Charter Documents of each of Apple. No breach or violation of any Charter
Document of either Apple has occurred and is continuing.
Section 5.05 CAPITAL STOCK OF APPLE. (a) Immediately prior to the IPO
Closing Date, (i) the authorized Capital Stock of Apple will be comprised of (A)
50,000,000 shares of Apple Common Stock and (B) 10,000,00 shares of preferred
stock, $.01 par value per share, (ii) before giving effect to the Acquisition
and the merger or other acquisition transactions contemplated by the Other
Agreements, (A) the number of shares of Apple Common Stock then issued and
outstanding will be as set forth in the Registration Statement when it becomes
effective under the Securities Act, (B) no shares of the Apple preferred stock
then will be issued or outstanding and (C) Apple will have reserved for issuance
pursuant to Other Compensation Plans or the exercise of Derivative Securities
the number of shares of Apple Common Stock set forth in the Registration
Statement when it becomes effective under the Securities Act.
(b) All shares of Apple Common Stock outstanding immediately prior to the
IPO Closing Date, and all shares of Apple Common Stock to be issued pursuant to
Section 2.04, when issued, (i) will have been duly authorized and validly issued
in accordance with the DGCL and their issuer's Charter Documents and (ii) will
be fully paid and nonassessable. None of the shares of Apple Common Stock to be
issued pursuant to Section 2.04 will, when issued, have been issued in breach or
violation of (i) any applicable statutory or contractual preemptive rights, or
any other rights of any kind (including any rights of first offer or refusal),
of any Person or (ii) the terms of any of its Derivative Securities then
outstanding.
Section 5.06 SUBSIDIARIES. Immediately prior to the IPO Closing Date, (a)
Apple will have no Subsidiaries and (b) Apple will not own, of record or
beneficially, directly or indirectly through any Person or otherwise (except
pursuant hereto or to the Other Agreements), any Capital Stock or Derivative
Securities of any Entity not described in this Section 5.06 as a Subsidiary of
Apple.
Section 5.07 LIABILITIES. Except as disclosed in the Private Placement
Memorandum, Apple has no material liabilities of any kind other than those
incurred in connection with this Agreement and the Other Agreements and the
transactions contemplated hereby and thereby, including the IPO.
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Section 5.08 COMPLIANCE WITH LAWS; NO LITIGATION. Apple is in compliance
with all Governmental Requirements applicable to it, and no Litigation is
pending or, to the knowledge of Apple, threatened to which Apple is or may
become a party which (a) questions or involves the validity or enforceability of
any obligation of Apple under any Transaction Document, (b) seeks (or reasonably
may be expected to seek) (i) to prevent or delay consummation by Apple of the
transactions contemplated by this Agreement to be consummated by Apple or (ii)
damages from Apple in connection with any such consummation.
Section 5.09 NO BROKERS. Except as disclosed in the Private Placement
Memorandum, Apple has not, directly or indirectly, in connection with this
Agreement or the transactions contemplated hereby (a) employed any broker,
finder or agent or (b) agreed to pay or incurred any obligation to pay any
broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 5.10 PRIVATE PLACEMENT MEMORANDUM. At the date hereof, the
PrivatePlacement Memorandum (other than the historical financial statements,
including the notes thereto, of the Founding Companies (other than the Seller)
and the historical information contained therein respecting the Seller and the
Owners to which this Section 5.10 does not apply) does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in the light
of the circumstances under which those statements are made.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From the date
hereof and until the IPO Closing Date, the Seller will (i) afford to the
Representatives of Apple reasonable access to all the key employees, sites,
properties, books and records of each of the Seller and the Seller Subsidiaries,
(ii) provide Apple with such additional financial and operating data and other
information relating to the business and properties of each of the Seller and
the Seller Subsidiaries as Apple or any Other Founding Seller may from time to
time reasonably request and (iii) cooperate with Apple and each Other Founding
Seller and their respective Representatives in the preparation of any documents
or other material which may be required in connection with any Transaction
Documents or any Other Transaction Documents. Each Owner and the Seller will
treat all Confidential Information obtained by them in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to Apple as confidential in accordance
with the provisions of Section 11.01.
(b) Each of the Seller and the Owners, if any, will use its best efforts
to secure, as soon as practicable after the date hereof, all approvals or
consents of third Persons as may be necessary to consummate the transactions
contemplated hereby.
(c) From the date hereof and until the IPO Closing Date, Apple will (i)
afford to the Representatives of the Seller and the Owners, if any, access to
all sites, properties, books
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and records of Apple, (ii) provide the Seller with such additional financial and
operating data and other information relating to the business and properties of
Apple as the Seller or any Owner may from time to time reasonably request and
(iii) cooperate with the Seller and the Owners, and their respective
Representatives in the preparation of any documents or other material which may
be required in connection with any Transaction Documents.
(d) If this Agreement is terminated pursuant to Section 12.1, Apple
promptly will return all written Confidential Information of the Seller it then
possesses to the Seller.
Section 6.03 CONDUCT OF BUSINESS PENDING CLOSING. From the date hereof and
until the IPO Closing Date, the Seller will, and will cause each Seller
Subsidiary to, except as and only to the extent set forth in Section 6.03 of the
Disclosure Statement:
(a) carry on its businesses in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all its obligations under agreements relating to or affecting
its assets, properties and other rights;
(d) keep in full force and effect without interruption all its present
insurance policies or other comparable insurance coverage;
(e) use reasonable commercial efforts to (i) maintain and preserve its
business organization intact, (ii) retain its present employees and (iii)
maintain its relationships with suppliers, customers, patients and others having
business relations with it;
(f) comply with all applicable Governmental Requirements; and
(g) except as required or expressly permitted by this Agreement, maintain
the instruments and agreements governing its outstanding Indebtedness and leases
on their present terms and not enter into new or amended Indebtedness or lease
instruments or agreements involving amounts over $1,000 in any case or $5,000 in
the aggregate, without the prior written consent of Apple (which consent will
not be unreasonably withheld).
Section 6.04 PROHIBITED ACTIVITIES. From the date hereof and until the IPO
Closing Date, without the prior written consent of Apple or unless as required
or expressly permitted by this Agreement, the Seller will not, and will not
permit any Seller Subsidiary to:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock or issue or otherwise create any of its
Derivative Securities;
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(c) make any Restricted Payment (other than as provided in Section 6.04 of
the Disclosure Statement);
(d) make any investments (other than Permitted Investments) in the Capital
Stock, Derivative Securities or Indebtedness of any Person;
(e) enter into any contract or commitment or incur or agree to incur any
liability or make any capital expenditures in a single transaction or a series
of related transactions involving an aggregate amount of more than $1,000
otherwise than in the ordinary course of its business and consistent with its
past practice;
(f) increase or commit or promise to increase the Cash Compensation
payable or to become payable to any officer, director, stockholder, employee or
agent, consultant or independent contractor of any of the Seller and the Seller
Subsidiaries or make any discretionary bonus or management fee payment to any
such Person, except bonuses or salary increases to employees (other than the
Owners Immediate Family Members) at the times and in the amounts consistent with
its past practice;
(g) create, assume or permit to be created or imposed any Liens (other
than Permitted Liens) upon any of its assets or properties, whether now owned or
hereafter acquired, except for purchase money Liens incurred in connection with
the acquisition of equipment with an aggregate cost not in excess of $1,000 and
necessary or desirable for the conduct of the business of any of the Seller and
the Seller Subsidiaries;
(h) (i) adopt, establish, amend or terminate any ERISA Employee Benefit
Plan, or any Other Compensation Plan or Employee Policies and Procedures or (ii)
take any discretionary action, or omit to take any contractually required
action, if that action or omission could either (A) deplete the assets of any
ERISA Employee Benefit Plan or any Other Compensation Plan or (B) increase the
liabilities or obligations under any such plan;
(i) sell, assign, lease or otherwise transfer or dispose of any of its
owned or leased property or equipment otherwise than in the ordinary course of
its business and consistent with its past practice;
(j) negotiate for the acquisition of any business or the start-up of any
new business;
(k) merge, consolidate or effect a share exchange with, or agree to merge,
consolidate or effect a share exchange with any other Entity;
(l) waive any of its material rights or claims, provided that it may
negotiate and adjust bills in the course of good faith disputes with customers
in a manner consistent with past practice, but such adjustments will not be
deemed to be included in Section 4.17 of the Disclosure Statement unless
specifically listed in the Supplemental Information;
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(m) commit a material breach of or amend or terminate any Material
Agreement of the Seller or any of its Governmental Approvals; or
(n) enter into any other transaction (i) outside the ordinary course of
its business and consistent with its past practice or (ii) prohibited hereby.
Section 6.05 NO SHOP; RELEASE OF DIRECTORS. (a) Each of the Seller and the
Owners agrees that, from the date hereof and until the first to occur of the IPO
Closing Date or the termination of this Agreement in accordance with Article
XII, neither the Seller nor any Owner, nor any of their respective officers and
directors shall, and the Seller and each Owner will direct and use their best
efforts to cause each of their respective Representatives not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including any proposal or offer to the
Owners) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Seller (any such proposal or offer being
an "Acquisition Proposal") or engage in any activities, discussions or
negotiations concerning, or provide any Confidential Information respecting, the
Seller, any Other Founding Company or Apple to, or have any discussions with,
any Person relating to an Acquisition Proposal or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal. The Seller and
each Owner will: (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and each will take the steps necessary to
inform the Persons referred to in the first sentence of this Section 6.05(a) of
the obligations undertaken in this Section 6.05(a); and (ii) notify Apple
immediately if any such inquiries or proposals are received by, any such
information is requested from or any such discussions or negotiations are sought
to be initiated or continued with the Seller or any Owner.
(b) Each of the Seller and the Owners hereby (i) waives every right, if
any, the Governmental Requirements of the Seller's Organization State afford the
Seller or Owners to require the Seller's directors (or their equivalents if the
Seller is not a corporation), in the exercise of their fiduciary duties in their
capacity as such, to engage in any of the activities prohibited by this Section
6.05 and (ii) releases each such person from any and all liability he might
otherwise have to the Seller or any Owners but for this release.
Section 6.06 [INTENTIONALLY DELETED].
Section 6.07 NOTIFICATION OF CERTAIN MATTERS. The Owners and the Seller
shall give prompt notice to Apple of (a) the existence or occurrence of each
condition or state of facts which will or reasonably could be expected to cause
any representation or warranty of the Seller or any Owner contained herein to be
untrue or incorrect in any material respect at or prior to the Closing or on the
IPO Closing Date and (b) any material failure of any Owner or the Seller to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by that Person hereunder, provided that no such notice shall be
required until Apple shall give notice to the Seller and the Owners of the date
scheduled for the Closing with respect to the occurrence in the ordinary course
of business and consistent with past practice of the Seller or any Seller
Subsidiary, as the case may be, of any condition or state of facts which would
cause
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any Sections of the Disclosure Statement to be incorrect. Apple shall give
prompt notice to the Seller of (a) the existence or occurrence of each condition
or state of facts which will or reasonably could be expected to cause any
representation or warranty of Apple contained herein to be untrue or inaccurate
at or prior to the Closing or on the IPO Closing Date and (b) any material
failure of Apple to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 6.07 shall not be deemed to (a) modify the
representations or warranties herein of the party delivering that notice, or any
other party, which modification may be made only pursuant to Section 6.08, (b)
modify the conditions set forth in Article VII or (c) limit or otherwise affect
the remedies available hereunder to the party receiving that notice.
Section 6.08 SUPPLEMENTAL INFORMATION. The Seller and each Owner agrees
that, with respect to the representations and warranties of that party contained
in this Agreement, that party will have the continuing obligation (except to the
extent otherwise provided in Section 6.07) until the Closing to provide Apple
promptly with such additional supplemental Information (collectively, the
"Supplemental Information"), in the form of (a) amendments to then existing
Sections of the Disclosure Statement or (b) additional Sections of the
Disclosure Statement, as would be necessary, in the light of the circumstances,
conditions, events and states of facts then known to the Seller or any Owner, to
make each of those representations and warranties true and correct as of the
Closing and on the IPO Closing Date. For purposes only of determining whether
the conditions to the obligations of Apple which are specified in Sections
7.04(a)(ii)(A) and 7.04(b)(ii) have been satisfied, and not for any purpose
under Article IX, the Disclosure Statement as of the Closing and on the IPO
Closing Date shall be deemed to be the Disclosure Statement as of the date
hereof as amended or supplemented by the Supplemental Information provided to
Apple prior to the Closing pursuant to this Section 6.08; provided, however,
that if the Supplemental Information so provided discloses the existence of
circumstances, conditions, events or states of facts which, in any combination
thereof, (a) have had a Material Adverse Effect on the Seller which was not
reflected in the determination of the Transaction Value or, in the sole judgment
of Apple (which shall be conclusive for purposes of this Section 6.08 and
Article XII, but not for any purpose of Article IX), (b) are having or will have
a Material Adverse Effect on the Seller, Apple will be entitled either (i) to
terminate this Agreement pursuant to Section 12.01(d) or (ii) to treat as Apple
Indemnified Losses for all purposes of Article IX (which treatment will not
prejudice the right of Seller under Article IX to contest Damage Claims made by
Apple in respect of those Apple Indemnified Losses) all Damages to the Seller
which are attributable to the circumstances, conditions, events and states of
facts first disclosed herein after the date hereof in the Supplemental
Information. Apple will provide the Seller with copies of the Registration
Statement, including all pre-effective amendments thereto, promptly after the
filing thereof with the SEC under the Securities Act.
Section 6.09 COOPERATION IN CONNECTION WITH THE IPO. The Seller and the
Owners will (a) provide Apple and the Underwriter with all the Information
concerning the Seller or any Owner which is reasonably requested by Apple and
the Underwriter from time to time in connection with effecting the IPO and (b)
cooperate with Apple and the Underwriter and their respective Representatives in
the preparation and amendment of the Registration Statement (including the
Financial Statements) and in responding to the comments of the SEC staff, if
any, with respect thereto. The Seller and each Owner agree promptly to (a)
advise Apple if, at any
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time during the period in which a prospectus relating to the IPO is required to
be delivered under the Securities Act, any information contained in the then
current Registration Statement prospectus concerning the Seller or the Owners
becomes incorrect or incomplete in any material respect and (b) provide Apple
with the information needed to correct or complete that information.
Section 6.10 ADDITIONAL FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Seller will furnish to Apple:
(a) as soon as available and in any event within 30 days after the end of
each of the Seller's fiscal quarters which ends prior to the IPO Pricing Date,
an unaudited consolidated balance sheet of the Seller and the Seller
Subsidiaries as of the end of that fiscal quarter and the related consolidated
statements of income or operations, cash flows and stockholders' or other
owners' equity for that fiscal quarter and for the period of the Seller's fiscal
year ended with that quarter, in each case (i) setting forth in comparative form
the figures for the corresponding portion of the Seller's previous fiscal year
and (ii) prepared in accordance with GAAP applied on basis consistent (A)
throughout the periods indicated (excepting footnotes) and (B) with the basis on
which the Initial Financial Statements including the Current Balance Sheet were
prepared;
(b) if requested by Apple in connection with any amendment of the
Registration Statement and promptly following any such request, such summary
consolidated operating or other financial information of the Seller and the
Seller Subsidiaries as of the end of either the first or second fiscal month in
any of the Seller's fiscal quarters as Apple may request; and
(c) to the extent not provided at the time of execution and delivery of
this Agreement, on or prior to March 1, 1997 the information concerning the
Owner and the Business contemplated by the Agreement to be set forth in the
Disclosure Statement.
Section 6.11 TERMINATION OR TRANSFER OF PLANS. If requested by Apple, the
Seller will, or will cause the applicable Seller Subsidiary to, if permitted by
all applicable Governmental Requirements to do so, terminate each Plan
identified in Section 4.26(c) or (d) of the Disclosure Statement as a "Plan To
Be Terminated" prior to the IPO Closing Date.
Section 6.12 [INTENTIONALLY DELETED].
Section 6.13 HSR ACT MATTERS. If Apple shall determine that filings
pursuant to and under the HSR Act are necessary or appropriate in connection
with the effectuation of the Acquisition or the consummation of the acquisitions
contemplated by the Other Agreements, and advises the Seller in writing of that
determination, the Seller promptly will compile and file under the HSR Act such
information respecting it as the HSR Act requires of an Entity to be acquired,
and the expiration or termination of the applicable waiting period and any
extension thereof under the HSR Act shall be deemed a condition precedent set
forth in Section 7.02(b).
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.02 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. (a) The
obligation of each party hereto to take the actions contemplated to be taken by
that party at the Closing is subject to the satisfaction of each of the
following conditions on or before the date of the Closing:
(i) NO LITIGATION. Except as set forth in Section 7.02 of
the Disclosure Statement, no Litigation shall be pending
on the date of the Closing to restrain, prohibit or
otherwise interfere with, or to obtain material damages
or other relief from Apple in connection with, the
consummation of the Acquisition or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
required to be obtained by any of the Seller and Apple
in connection with the consummation of the Acquisition
and the IPO shall have been obtained; and
(iii) THE REGISTRATION STATEMENT. (A) The
Registration Statement, as amended to cover the
offering, issuance and sale by Apple of such number of
shares of Apple Common Stock at the IPO Price (which
need not be set forth in the Registration Statement when
it becomes effective under the Securities Act) as shall
yield aggregate cash proceeds to Apple from that sale
(net of the Underwriter's discount or commissions) in at
least the amount (the "Minimum Cash Amount") that is
sufficient, when added to the funds, if any, available
from other sources (if any, and as set forth in the
Registration Statement when it becomes effective under
the Securities Act) (the "Other Financing Sources") to
enable Apple to pay or otherwise deliver on the IPO
Closing Date (1) the total cash portion of the
Acquisition Consideration then to be delivered pursuant
to Section 2.04, (2) the total cash portion of the
consideration then to be delivered pursuant to the Other
Agreements as a result of the consummation of the
Acquisition or other acquisition transactions
contemplated thereby and (3) the total amount of
Indebtedness of the Founding Companies and Apple which
the Registration Statement discloses at the time it
becomes effective under the Securities Act will be
repaid on the IPO Closing Date with proceeds received by
Apple from the IPO and the Other Financing Sources,
shall have been declared effective under the Securities
Act by the SEC; (B)
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no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the
SEC, and the SEC shall not have initiated or threatened
to initiate Litigation for that purpose; and (C) the
Underwriter shall have agreed in writing (the
"Underwriting Agreement," which term includes the
related pricing agreement, if any) to purchase from
Apple on a firm commitment basis for resale to the
public initially at the IPO Price, subject to the
conditions set forth in the Underwriting Agreement, such
number of shares of Apple Common Stock covered by the
Registration Statement as, when multiplied by the price
per share of Apple Common Stock to be paid by the
Underwriter to Apple pursuant to the Underwriting
Agreement, shall equal at least the Minimum Cash Amount.
(b) The obligation of each party hereto with respect to the actions to be
taken on the IPO Closing Date is subject to the satisfaction on that date of
each of the following conditions:
(i) NO LITIGATION. Except as set forth in Section 7.02 of
the Disclosure Statement, no Litigation shall be pending
on the IPO Closing Date to restrain, prohibit or
otherwise interfere with, or to obtain material damages
or other relief from Apple in connection with, the
consummation of the Acquisition or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
required to be obtained by the Seller and Apple in
connection with the consummation of the Acquisition and
the IPO shall have been obtained;
(iii) RECEIPT OF CERTAIN CERTIFICATES. Each Owner or Seller,
as applicable, or his Representative shall receive the
certificates that such party is entitled to receive on
the IPO Closing Date; and
(iv) CLOSING OF THE IPO. Apple shall have issued and sold
shares of Apple Common Stock to the Underwriter in
accordance with the Underwriting Agreement for initial
resale at the IPO Price and received payment therefor in
an amount at least equal to the amount by which (A) the
Minimum Cash Amount exceeds (B) the aggregate amount of
funds actually received on the IPO Closing Date, if any,
from any one or more of the Other Financing Sources.
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Section 7.03 CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE OWNERS.
The obligations of the Seller and each Owner with respect to actions to be taken
by them at or before the Closing and the actions to be taken on the IPO Closing
Date are subject to the satisfaction, or the written waiver by the Seller on
behalf of itself and each Owner pursuant to Section 11.05 on or before the date
of the Closing of, in addition to the conditions specified in Section 7.02(a) or
7.02(b), as applicable, (i) all the conditions set forth in Section 7.01(b), if
any, and (ii) all the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All the representations and warranties
of Apple in Article V shall be true and correct as of the Closing as though made
at that time;
(b) DELIVERY OF DOCUMENTS. Apple shall have delivered to the Seller:
(i) an Apple officer's certificate respecting the representations
and warranties of Apple in Article V and compliance with the
covenants of Apple in Article VI and in the form thereof
attached as an exhibit to the Closing Memorandum;
(ii) opinions dated the IPO Closing Date and addressed to the
Seller and the Owners from Counsel for Apple substantially in
the forms thereof attached as exhibits to the Closing
Memorandum;
(iii) a certificate of the secretary or any assistant secretary of
Apple in the form thereof attached as an exhibit to the
Closing Memorandum and respecting, and to which is attached,
(A) the Charter Documents of Apple (certified by the Secretary
of State of the State of Delaware in the case of the
certificates of incorporation included therein); (B)the
resolutions of the board of directors of Apple respecting the
Transaction Documents and the transactions contemplated
thereby; (C) a certificate respecting the incumbency and true
signatures of the Apple officers who execute the Transaction
Documents on behalf of Apple; (D) a specimen certificate
evidencing shares of Apple Common Stock; (E) the prospectus
included in the Registration Statement when it became
effective; and (F) a facsimile copy of the Underwriting
Agreement as executed and delivered by Apple and the
Underwriter;
(iv) the Registration Rights Agreement duly executed and delivered
by Apple; and
(v) a certificate, dated as of a Current Date, duly issued by the
Secretary of State of the State of Delaware, showing Apple to
be in good standing and authorized to do business in that
State.
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Section 7.04 CONDITIONS TO THE OBLIGATIONS OF APPLE . (a) The obligations
of Apple with respect to actions to be taken by them at or before the Closing
are subject to the satisfaction on or before the date of the Closing of, in
addition to the conditions specified in Section 7.02 (a), (i) all the conditions
set forth in Section 7.01(c), if any, and (ii) all the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Owners and the Seller in Articles III and IV shall be true and
correct as of the Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. The Owners and the Seller shall have
delivered to Apple:
(1) a Seller officer's certificate, signed by a Responsible
Officer, respecting the representations and warranties of the
Owners and the Seller in Articles III and IV and compliance
with the covenants of the Owners and the Seller in Article VI
and in the form thereof attached as an exhibit to the Closing
Memorandum;
(2) opinions dated the IPO Closing Date and addressed to Apple and
Counsel for Apple from Counsel for the Seller and the Owners,
substantially in the form thereof attached as exhibits to the
Closing Memorandum;
(3) a certificate of the secretary or any assistant secretary of
the Seller in the form thereof (without attachments thereto)
attached as an exhibit to the Closing Memorandum and
respecting, and to which is attached, (a) the Charter
Documents of the Seller; (b) the resolutions of the board of
directors of the Seller respecting the Transaction Documents
and the transactions contemplated thereby; and (c) a
certificate respecting the incumbency and true signatures of
the Responsible Officers who execute the Transaction Documents
on behalf of the Seller;
(4) [Intentionally Left Blank]
(5) from each Owner, an executed certificate to the effect that no
withholding is required under Section 1445 of the Code, in the
form of Exhibit 7.04(a)(ii)(B)(5), with the blanks
appropriately filled;
(6) for each of the Seller and the Seller Subsidiaries, a
certificate, dated as of a Current Date, duly issued by the
appropriate Governmental Authorities in its Organization State
and, unless waived by Apple, in each other jurisdiction listed
for it in Section 4.02 of the Disclosure Statement, showing it
to be in good standing and authorized to do business in its
Organization State
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and those other jurisdictions and that all state franchise
and/or income tax returns and taxes due by it in its
Organization State and those other jurisdictions for all
periods prior to the Closing have been filed and paid; and
(7) from the Seller, a bill of sale and deeds, assignments and any
other necessary instruments, satisfactory in form and content
and approved prior to the Closing by Apple, conveying, free
and clear of any Liens, all the Acquired Assets to Apple.
(C) DUE DILIGENCE. Apple's due diligence investigation of the
Seller and any Owner shall have been completed to the satisfaction of Apple in
its sole discretion.
(b) The obligations of Apple with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of (i) all the
conditions set forth in Section 7.01(d), if any, and (ii) the condition that all
the representations and warranties of the Owners and the Seller in Articles III
and IV shall be true and correct as of the IPO Closing Date as though made on
that date.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.02 DISCLOSURE. If, subsequent to the IPO Pricing Date and prior
to the 25th day after the date of the Final Prospectus, Seller or any Owner
becomes aware of any fact or circumstance which would change (or, if after the
IPO Closing Date, would have changed) a representation or warranty of the Seller
or any Owner in this Agreement or would affect any document delivered pursuant
hereto in any material respect, Seller or that Owner will promptly give notice
of that fact or circumstance to Apple.
Section 8.03 PREPARATION AND FILING OF TAX RETURNS. Each party hereto
will, and will cause its Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. This cooperation and information shall include
providing copies of all relevant portions of the relevant Returns, together with
such accompanying schedules and work papers, documents relating to rulings or
other determinations by Taxing Authorities and records concerning the ownership
and Tax bases of property as are relevant which a party possesses. Each party
will make its employees, if any, reasonably available on a mutually convenient
basis at its cost to provide an explanation of any documents or information so
provided. Subject to the preceding sentence, each party required by law to file
Returns shall bear all costs attributable to the preparation and filing of those
Returns; provided that if Apple is required to file a Return covering a period
described in Code Section 1362(e)(1)(A) (an S short year), such costs shall be
reimbursed by the Owners.
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Section 8.04 DIRECTORS. Apple will use its best efforts to cause each of
the persons, if any, who are named in the Final Prospectus as persons who will
become members of the board of directors of Apple following the IPO Closing Date
to be appointed to that board when that prospectus so provides.
Section 8.05 [INTENTIONALLY DELETED].
Section 8.06 ACCESS. The Seller and the Owners, if any, shall, at
reasonable times during normal business hours and on reasonable notice, permit
Apple and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and records of the Orthodontic
Entity, and permit Apple and its authorized representatives to inspect and, at
Apple's sole cost and expense, make copies of all documents, records (other than
patient medical records) and information with respect to the affairs of the
Orthodontic Entity as Apple and its representatives may request.
Section 8.07 LICENSES AND PERMITS. The Seller and the Owners shall use
their best efforts to obtain all licenses, permits, approvals or other
authorizations required under any law, statute, rule, regulation or ordinance,
or otherwise necessary or desirable to provide the services of the Orthodontic
Entity, the stockholders of the Orthodontic Entity and the Orthodontic Entity
Professional Employees (as defined in the Service Agreement), the Orthodontic
Entity Professional Employment Agreements (as defined in the Service Agreement),
and to conduct the intended business of the Orthodontic Entity.
Section 8.08 ORTHODONTIST EMPLOYMENT AGREEMENT. The Seller and the Owners
shall use their best efforts to cause, at or immediately prior to Closing, each
orthodontist (i) to terminate his or her employment agreement, if any, with the
Seller by mutual consent without any liability therefor on the part of Seller
and (ii) to enter into an Orthodontic Entity Professional Employment Agreement
with the Orthodontic Entity.
ARTICLE IX
INDEMNIFICATION
Section 9.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the
provisions of this Agreement will survive the Closing and the IPO Closing Date
indefinitely notwithstanding any investigation at any time made by or on behalf
of any party hereto or the provision of any Supplemental Information pursuant to
Section 6.08, provided that the representations and warranties set forth in
Articles IV, V and VI and in any certificate delivered in connection herewith
with respect to any of those representations and warranties will terminate and
expire on December 31, 1999, except as follows: (a) the representations and
warranties of the Seller and any Owners which relate expressly or by necessary
implication to Taxes, ERISA or other employment or labor matters or the
Governmental Requirements referred to in clause (iii) of Section 9.03(a) will
survive until ninety (90) days after the expiration of the applicable statutes
of limitations (including all periods of extension and tolling); and (b) the
representations and warranties of the Seller and any Owners which relate
expressly or by necessary implication to
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the environment or Environmental Laws will survive for a period of three years
from the IPO Closing Date. After a representation and warranty has terminated
and expired, no indemnification will or may be sought pursuant to this Article
IX on the basis of that representation and warranty by any Person who would have
been entitled pursuant to this Article IX to indemnification on the basis of
that representation and warranty prior to its termination and expiration,
provided that, in the case of each representation and warranty that will
terminate and expire as provided in this Section 9.02, no claim presented in
writing for indemnification pursuant to this Article IX on the basis of that
representation and warranty prior to its termination and expiration will be
affected in any way by that termination and expiration.
Section 9.03 INDEMNIFICATION OF APPLE INDEMNIFIED PARTIES. (a) Subject to
the applicable provisions of Sections 9.02 and 9.07, the Seller and the Owners
covenant and agree that they, jointly and severally, will indemnify each Apple
Indemnified Party against, and hold each Apple Indemnified Party harmless from
and in respect of, all Damage Claims that arise from, are based on or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of the Owners or the Seller set forth herein (other than Article III)
or in certificates delivered in connection herewith (other than in respect of
certificates relating only to the representations and warranties in Article
III), (ii) any nonfulfillment of any covenant or agreement on the part of the
Owners or the Seller under this Agreement, (iii) all Taxes of the Owner that
arise or result from the consummation of the transactions contemplated by this
Agreement or any agreement ancillary hereto (including, without limitation,
sales, use and other transfer Taxes and income Taxes), (iv) any liability under
the Securities Act, the Exchange Act or other applicable Governmental
Requirement which arises out of or is based on (A) any untrue statement or
alleged untrue statement of a material fact relating to the Seller and the
Seller Subsidiaries, or any of them, which is (1) provided to Apple or its
counsel by the Seller or the Owners and (2) contained in the Private Placement
Memorandum, any preliminary prospectus relating to the IPO, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or (B) any omission or alleged omission to state therein a
material fact relating to the Seller and the Seller Subsidiaries, or any of
them, required to be stated therein or necessary to make the statements therein
not misleading, and not provided to Apple or its counsel by the Seller or the
Owners (v) the litigation described in Section 4.12 of the Disclosure Statement,
or (vi) any debts, liabilities or obligations of the Owner, direct or indirect,
fixed, contingent or otherwise, that are not expressly assumed by Apple in this
Agreement (each such Damage Claim described in Section 9.03(b) being an "Apple
Indemnified Loss"); provided, however, that no Owner shall be obligated to
indemnify any Apple Indemnified Party against any Apple Indemnified Loss to the
extent that such untrue statement (or alleged untrue statement) was made in, or
such omission (or alleged omission) occurred in, any preliminary prospectus and
the Owner timely provided, in writing, corrected or the necessary additional
information to Apple and its counsel for inclusion in the Final Prospectus.
(b) Each Owner, severally and not jointly with any other Person, covenants
and agrees that he will indemnify each Apple Indemnified Party against, and hold
each Apple Indemnified Party harmless from and in respect of, all Damage Claims
that arise from, are based on or relate or otherwise are attributable to (i) any
breach of the representations and warranties of that Owner solely as to that
Owner set forth in Article III or in certificates delivered by that Owner and
relating to those representations and warranties, (ii) any nonfulfillment of any
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several, and not joint and several, agreement on the part of that Owner under
this Agreement or (iii) any liability under the Securities Act, the Exchange Act
or other applicable Governmental Requirement which arises out of or is based on
(A) any untrue statement or alleged untrue statement of a material fact relating
solely to that Owner which is (1) provided to Apple or its counsel by that Owner
and (2) contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (B) any omission or alleged omission
to state therein a material fact relating solely to that Owner required to be
stated therein or necessary to make the statements therein not misleading, and
not provided to Apple or its counsel by that Owner; provided, however, that no
Owner shall be obligated to indemnify any Apple Indemnified Party against any
Apple Indemnified Loss to the extent that such untrue statement (or alleged
untrue statement) was made in, or such omission (or alleged omission) occurred
in, any preliminary prospectus and the Owner timely provided, in writing,
corrected or the necessary additional information to Apple and its counsel for
inclusion in the Final Prospectus.
Section 9.04 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES. Apple
covenants and agrees that it will indemnify each Seller Indemnified Party
against, and hold each Seller Indemnified Party harmless from and in respect of,
all Damage Claims (that arise from, are based on or relate or otherwise are
attributable to (i) any breach by Apple of their representations and warranties
set forth herein or in their certificates delivered to the Seller or the Owners
in connection herewith, (ii) any nonfulfillment of any covenant or agreement on
the part of Apple under this Agreement or (iii) any liability under the
Securities Act, the Exchange Act or other applicable Governmental Requirement
which arises out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating to Apple or any of the Other Founding
Companies contained in the Private Placement Memorandum, any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (B)
any omission or alleged omission to state therein a material fact relating to
Apple or any of the Other Founding Companies, or any of them, required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made (each such Damage Claim
being a "Seller Indemnified Loss").
Section 9.05 CONDITIONS OF INDEMNIFICATION. (a) All claims for
indemnification under this Agreement shall be asserted and resolved as follows
in this Section 9.05.
(b) A party claiming indemnification under this Agreement (an "Indemnified
Party") shall promptly (i) notify the party from whom indemnification is sought
(the "Indemnifying Party") of any third-party claim or claims asserted against
the Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying Party
a written notice ("Claim Notice") describing in reasonable detail the nature of
the Third Party Claim, a copy of all papers served with respect to that claim
(if any), an estimate of the amount of damages attributable to the Third Party
Claim to the extent feasible (which estimate shall not be conclusive of the
final amount of such claim) and the basis for the Indemnified Party's request
for indemnification under this Agreement. Except as set forth in Section 9.02,
the failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the
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related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of that claim. Within 15 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article IX with
respect to that Third Party Claim and (ii) if the Indemnifying Party does not
dispute its potential liability to the Indemnified Party with respect to that
Third Party Claim, whether the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend the Indemnified Party against that
Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential liability to
the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.05(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any Affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.05(c) and will bear its own
costs and expenses with respect to that participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and, on its written
notification of that employment, the Indemnifying Party shall not have the right
to assume or continue the defense of such action on behalf of the Indemnified
Party.
(d) If the Indemnifying Party (i) within the Election Period (A) disputes
its potential liability to the Indemnified Party under this Article IX, (B)
elects not to defend the Indemnified Party pursuant to Section 9.05(c) or (C)
fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.05(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 9.05(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (if the Indemnified Party is entitled to indemnification
hereunder), the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the Indemnified Party
to a final conclusion or settled. The Indemnified Party shall have full control
of such defense and
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proceedings. Notwithstanding the foregoing, if the Indemnifying Party has
delivered a written notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article IX and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
9.05 or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all reasonable costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section 9.05(d),
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
(e) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an Indemnifying Party pursuant to
this Article IX relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 9.05(e) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
Section 9.06 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
Section 9.07 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding the
provisions of Section 9.03(a), neither the Seller nor any of the Owners shall be
required to indemnify or hold harmless any of the Apple Indemnified Parties on
account of any Apple Indemnified Loss under Section 9.03(a) unless the liability
of the Seller and the Owners in respect of that Apple Indemnified Loss, when
aggregated with the liability of the Seller and the Owners in respect of all
Apple Indemnified Losses under Section 9.03(a), exceeds, and only to the extent
the aggregate amount of all those Apple Indemnified Losses does exceed, the
Threshold Amount.
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In no event shall (i) the aggregate joint and several liability of the Seller
and the Owners under this Agreement, including Section 9.03(a), exceed the
Transaction Value or (ii) the aggregate liability of Seller and each Owner under
this Agreement, including Sections 9.03(a) and 9.03(b), exceed that Owner's Pro
Rata Share of the Transaction Value. For purposes of determining the amount of
Apple Indemnified Losses, no effect will be given to any resulting Tax benefit
to any Apple Indemnified Party.
(b) Notwithstanding the provisions of Section 9.04, Apple shall not be
required to indemnify or hold harmless any of the Seller Indemnified Parties on
account of any Seller Indemnified Loss unless the liability of Apple in respect
of that Seller Indemnified Loss, when aggregated with the liability of Apple in
respect of all Seller Indemnified Losses, exceeds, and only to the extent the
aggregate amount of all those Seller Indemnified Losses does exceed, the
Threshold Amount. In no event shall Apple be liable under this Agreement,
including Section 9.04, for any amount in excess of the Transaction Value. For
purposes of determining the amount of Seller Indemnified Losses, no effect will
be given to any resulting Tax benefit to any Seller Indemnified Party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.15 TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of the
Seller and the Owners, severally and not jointly with any other Person,
acknowledges that it has or may have had in the past, currently has and in the
future may have access to Confidential Information of the Seller and the Seller
Subsidiaries, the Other Founding Companies and their Subsidiaries and Apple and
its Subsidiaries. Each of the Seller and the Owner, severally and not jointly
with any other Person, agrees that it will keep confidential all such
Confidential Information furnished to it and, except with the specific prior
written consent of Apple will not disclose such Confidential Information to any
Person except (a) Representatives of Apple, (b) its own Representatives,
provided that these Representatives (other than counsel) agree to the
confidentiality provisions of this Section 11.15; and provided, further, that
Confidential Information shall not include (i) such information which becomes
known to the public generally through no fault of Seller or any Owner, (ii)
information required to be disclosed by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), Seller and each Owner shall, if possible, give
prior written notice thereof to Apple and provide Apple with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party. In the event of a breach or threatened breach by Seller or
any Owner of the provisions of this Section 11.15 with respect to any
Confidential Information, Apple shall be entitled to an injunction restraining
Seller or any such Owner from disclosing, in whole or in part, that Confidential
Information. Nothing herein shall be construed as prohibiting Apple from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
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(b) Because of the difficulty of measuring economic losses as a result of
the breach of the foregoing covenants in Section 11.15(a), and because of the
immediate and irreparable damage that would be caused to Apple for which it
would have no other adequate remedy, each of the Seller and the Owners agrees
that Apple may enforce the provisions of Section 11.01(a) by injunctions and
restraining orders against each of them who breaches any of those provisions.
(c) The obligations of Apple set forth in Section 6.02(d) are incorporated
in this Section 11.01 by this reference.
(d) The obligations of the parties under this Section 11.15 shall survive
the termination of this Agreement.
Section 11.16 BULK SALES. Without implication that such laws apply to the
transaction contemplated hereby, the Owner and Apple shall not comply with the
provisions of the Uniform Commercial Code and other applicable laws of any
states relating to bulk sales or transfers.
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EXHIBIT 2.4
----------
Annex 1
APPLE ORTHODONTIX, INC.
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE DEFINED IN THE
CONTRIBUTION AGREEMENT AMONG APPLE ORTHODONTIX, INC. AND THE OWNER NAMED THEREIN
(CALLED THEREIN AND HEREIN "THIS AGREEMENT"), TO WHICH THESE UNIFORM PROVISIONS
ARE ATTACHED AS ANNEX 1 ARE USED HEREIN AS DEFINED THEREIN.
<PAGE>
TABLE OF CONTENTS
ARTICLE I ADDITIONAL DEFINITIONS....................................... 1
Section 1.02 Additional Defined Terms................................ 1
Section 1.03 Other Definitional Provisions........................... 11
Section 1.04 Captions................................................ 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.................. 12
Section 3.02 [Intentionally Left Blank].............................. 12
Section 3.03 [Intentionally Left Blank]. ............................ 12
Section 3.04 No Conflicts or Litigation.............................. 12
Section 3.05 No Brokers.............................................. 12
Section 3.06 [Intentionally Left Blank]. ............................ 12
Section 3.07 Control of Related Businesses........................... 13
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE OWNER....... 13
Section 4.02 Locations............................................... 13
Section 4.03 Power; Enforceability; Absence of Conflicts;
Required Consents....................................... 13
Section 4.04 [Intentionally Left Blank].............................. 14
Section 4.05 No Defaults............................................. 14
Section 4.06 [Intentionally Left Blank].............................. 14
Section 4.07 [Intentionally Left Blank].............................. 14
Section 4.08 [Intentionally Left Blank].............................. 14
Section 4.09 [Intentionally Left Blank].............................. 14
Section 4.10 Predecessor Status; Etc................................. 14
Section 4.11 Related Party Agreements................................ 14
Section 4.12 Litigation.............................................. 15
Section 4.13 Financial Statements; Disclosure........................ 15
Section 4.14 Compliance With Laws.................................... 15
Section 4.15 Certain Environmental Matters........................... 16
Section 4.16 Liabilities and Obligations............................. 16
Section 4.17 Receivables............................................. 17
Section 4.18 Owned and Leased Real Properties........................ 17
Section 4.19 Owned and Leased Property, Plant and Equipment.......... 18
Section 4.20 Proprietary Rights...................................... 18
Section 4.21 Title to Other Properties............................... 18
Section 4.22 Commitments............................................. 18
Section 4.23 Capital Expenditures.................................... 20
Section 4.24 Inventories............................................. 20
Section 4.25 Insurance............................................... 20
Section 4.26 Employee Matters........................................ 21
Section 4.27 Compliance with ERISA, Etc.............................. 23
Section 4.28 Taxes................................................... 25
Section 4.29 Government Contracts.................................... 26
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<PAGE>
Section 4.30 Absence of Changes...................................... 26
Section 4.31 Bank Relations; Powers of Attorney...................... 28
Section 4.32 Relations With Governments, Etc......................... 28
Section 4.33 Preemptive and Other Rights; Waiver..................... 28
Section 4.34 Organization and Good Standing; Qualification........... 28
Section 4.35 Corporate Records. .................................... 28
Section 4.36 Authorization and Validity. ........................... 29
Section 4.37 No Violation. ......................................... 29
Section 4.38 No Business, Agreements, Assets or Liabilities. ....... 29
Section 4.39 Compliance with Laws. ................................. 29
Section 4.40 Reliance on Representatives. .......................... 29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE...................... 30
Section 5.02 Organization; Power..................................... 30
Section 5.03 Authorization; Enforceability; Absence of
Conflicts; Required Consents............................ 30
Section 5.04 Charter Documents....................................... 31
Section 5.05 Capital Stock of Apple.................................. 31
Section 5.06 Subsidiaries............................................ 31
Section 5.07 Liabilities............................................. 31
Section 5.08 Compliance With Laws; No Litigation..................... 31
Section 5.09 No Brokers.............................................. 32
Section 5.10 Private Placement Memorandum............................ 32
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................. 32
Section 6.02 Access and Cooperation; Due Diligence................... 32
Section 6.03 Conduct of Business Pending Closing..................... 33
Section 6.04 Prohibited Activities................................... 33
Section 6.05 No Shop................................................. 35
Section 6.06 Formation of Orthodontic Entity......................... 35
Section 6.07 Notification of Certain Matters......................... 35
Section 6.08 Supplemental Information................................ 36
Section 6.09 Cooperation in Connection With the IPO.................. 36
Section 6.10 Additional Financial Statements and Other Information... 37
Section 6.11 Termination or Transfer of Plans........................ 37
Section 6.12 Disposition of Unwanted Assets.......................... 37
Section 6.13 HSR Act Matters......................................... 37
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION....... 38
Section 7.02 Conditions to the Obligations of Each Party............. 38
Section 7.03 Conditions to the Obligations of the Owner.............. 40
Section 7.04 Conditions to the Obligations of Apple.................. 40
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<PAGE>
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE..................... 42
Section 8.02 Disclosure.............................................. 42
Section 8.03 Preparation and Filing of Tax Returns................... 42
Section 8.04 Directors............................................... 42
Section 8.05 [Intentionally Left Blank].............................. 42
Section 8.06 Access.................................................. 42
Section 8.07 Licenses and Permits.................................... 42
Section 8.08 Orthodontist Employment Agreement....................... 43
ARTICLE IX INDEMNIFICATION.............................................. 43
Section 9.02 Survival of Representations and Warranties.............. 43
Section 9.03 Indemnification of Apple Indemnified Parties............ 43
Section 9.04 Indemnification of Owner Indemnified Parties............ 44
Section 9.05 Conditions of Indemnification........................... 44
Section 9.06 Remedies Not Exclusive.................................. 46
Section 9.07 Limitations on Indemnification.......................... 46
ARTICLE XI GENERAL PROVISIONS........................................... 47
Section 11.15 Treatment of Confidential Information.................. 47
Section 11.16 Bulk Sales............................................. 48
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<PAGE>
THE UNIFORM PROVISIONS
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02 ADDITIONAL DEFINED TERMS. These provisions constitute the
Uniform Provisions of the Contribution Agreement by and between Apple and the
Owner and, although in a separate document, are part of and are to be included
in the Contribution Agreement. As used in this Agreement, the following terms
have the meanings assigned to them below:
"Acquisition Proposal" has the meaning specified in Section 6.05.
"Affiliate" means, as to any specified Person, any other Person that,
directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by or is under common control with the specified Person.
As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person (whether through ownership of Capital Stock of that Person,
by contract or otherwise).
"Apple Common Stock" means the common stock, par value $.01 per share,
of Apple.
"Apple Indemnified Party" means Apple and its Affiliates and each of
their respective officers, directors, employees, agents, financial advisors and
counsel; provided, however, that no Person who indemnifies Apple Indemnified
Parties in this Agreement in his capacity as an Owner will be an Apple
Indemnified Party for purposes of this Agreement, notwithstanding that the
Person is an Apple Indemnified Party for purposes of one or more of the Other
Agreements.
"Apple Indemnified Loss" has the meaning specified in Section 9.03.
"Capital Lease" means a lease of (or other agreement conveying the right
to use) real or personal property that is required to be classified and
accounted for as a capital lease under GAAP as in effect on the date of this
Agreement.
"Capital Stock" means, with respect to: (a) any corporation, any share,
or any depositary receipt or other certificate representing any share, of an
equity ownership interest in that corporation; and (b) any other Entity, any
share, membership or other percentage interest, unit of participation or other
equivalent (however designated) of an equity interest in that Entity.
"Cash Compensation" means, as applied to any employee, nonemployee
director or officer of, or any natural person who performs consulting or other
independent contractor services for, the Business, the wages, salaries, bonuses
(discretionary and formula), fees and other cash compensation paid or payable by
the Owner to that employee or other natural person.
"CERCLA" means the Comprehensive Environmental Response, Conservation,
and Liability Act of 1980.
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"Charter Documents" means, with respect to any Entity at any time, in
each case as amended, modified and supplemented at that time, (a) the articles
or certificate of formation, incorporation, organization or association (or the
equivalent organizational documents) of that Entity, (b) the bylaws, limited
liability company agreement or regulations or partnership agreement (or the
equivalent governing documents) of that Entity and (c) each document setting
forth the designation, amount and relative rights, limitations and preferences
of any class or series of that Entity's Capital Stock or of any rights in
respect of that Entity's Capital Stock.
"Claim Notice" has the meaning specified in Section 9.05.
"Closing" has the meaning specified in Section 7.01.
"COBRA" means the Comprehensive Omnibus Budget Reconciliation Act of
1984.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means, with respect to any Person, all trade
secrets and other confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, capital expenditure
projects, cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any Governmental Authority
and all other confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or on behalf of
that Person.
"Current Balance Sheet" has the meaning specified in Section 1.01.
"Current Balance Sheet Date" has the meaning specified in Section 1.01.
"Current Date" means any day during the 20-day period ending on the date
of the Closing.
"Damage" to any specified Person means any cost, damage (including any
consequential, exemplary, punitive or treble damage) or expense (including
reasonable fees and actual disbursements by attorneys, consultants, experts or
other Representatives and Litigation costs) to, any fine of or penalty on or any
liability (including loss of earnings or profits) of any other nature of that
Person.
"Damage Claim" means, as asserted (a) against any specified Person, any
claim, demand or Litigation made or pending against that Person for Damages to
any other Person, or (b) by the specified Person, any claim or demand of the
specified Person against any other Person for Damages to the specified Person.
"Derivative Securities" of a specified Entity means any Capital Stock or
debt security or other Indebtedness of the specified Entity or any other Person
which is convertible into or exchangeable for, or any option, warrant or other
right to acquire, (a) any unissued Capital
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Stock of the specified Entity or (b) any Capital Stock of the specified Entity
which has been issued and is being held by the Entity directly or indirectly as
treasury Capital Stock.
"DGCL" means the General Corporation Law of the State of Delaware.
"Election Period" has the meaning specified in Section 9.05.
"Employee Policies and Procedures" means at any time all employee
manuals and all material policies, procedures and work-related rules that apply
at that time to any employee, nonemployee director or officer of, or any other
natural person performing consulting or other independent contractor services
for, the Business.
"Employment Agreement" means at any time any (a) agreement relating to
the Business to which the Owner is a party which then relates to the direct or
indirect employment or engagement, or arises from the past employment or
engagement, of any natural person by the Owner, whether as an employee, a
nonemployee officer or director, a consultant or other independent contractor, a
sales representative or a distributor of any kind, including any employee
leasing or service agreement and any noncompetition agreement, and (b) agreement
between the Owner and any Person which arises from the sale of a business by
that Person to the Owner and limits that Person's competition with the Owner.
"Entity" means any sole proprietorship, corporation, professional
association or corporation, partnership of any kind having a separate legal
status, limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company or joint venture.
"Environmental Laws" means any and all Governmental Requirements
relating to the environment or worker health or safety, including ambient air,
surface water, land surface or subsurface strata, or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes (including Solid Wastes,
Hazardous Wastes or Hazardous Substances) or noxious noise or odor into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, recycling, removal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes (including petroleum, petroleum distillates, asbestos or
asbestos-containing material, polychlorinated biphenyls, chlorofluorocarbons
(including chlorofluorocarbon-12) or hydrochlorofluorocarbons).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any specified Person at any
time, any other Person, including an Affiliate of the specified Person, that is,
or at any time within six years of that time was, a member of any ERISA Group of
which the specified Person is or was a member at the same time.
"ERISA Affiliate Pension Plan" has the meaning specified in Section
4.26.
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"ERISA Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA and includes any ERISA Pension Benefit Plan.
"ERISA Group" means any "group of organizations" within the meaning of
Section 414(b), (c), (m) or (o) of the Code or any "controlled group" as defined
in Section 4001(a)(14) of ERISA.
"ERISA Pension Benefit Plan" means any "employee pension benefit plan,"
as defined in Section 3(2) of ERISA, including any plan that is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code (excluding any Multiemployer Plan).
"Exchange Act" means the Securities Exchange Act of 1934.
"Final Prospectus" means the prospectus included in the Registration
Statement at the time it becomes effective, except that if the prospectus first
furnished to the Underwriter after the Registration Statement becomes effective
for use in connection with the IPO differs from the prospectus included in the
Registration Statement at the time it becomes effective (whether or not that
prospectus so furnished is required to be filed with the SEC pursuant to
Securities Act Rule 424(b)), the prospectus so furnished is the "Final
Prospectus."
"Financial Statements" means the Initial Financial Statements and the
other financial statements relating to the Business, if any, delivered to Apple
pursuant to Section 6.10 prior to the IPO Closing Date.
"GAAP" means generally accepted accounting principles and practices in
the United States as in effect from time to time which (i) have been concurred
in by Arthur Andersen LLP and (ii) have been or are applied on a basis
consistent (except for changes concurred in by Arthur Andersen LLP) with the
most recent audited Financial Statements delivered to Apple prior to the IPO
Closing Date.
"Governmental Approval" means at any time any authorization, consent,
approval, permit, franchise, certificate, license, implementing order or
exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
"Governmental Authority" means (a) any national, state, county,
municipal or other government, domestic or foreign, or any agency, board,
bureau, commission, court, department or other instrumentality of any such
government, or (b) any Person having the authority under any applicable
Governmental Requirement to assess and collect Taxes for its own account.
"Governmental Requirement" means at any time (a) any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
award, authorization or other requirement of any Governmental Authority in
effect at that time or (b) any obligation included in any certificate,
certification, franchise, permit or license issued by any Governmental
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Authority or resulting from binding arbitration, including any requirement under
common law, at that time.
"Guaranty" means, for any specified Person, without duplication, any
liability, contingent or otherwise, of that Person guaranteeing or otherwise
becoming liable for any obligation of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including any liability of
the specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for the
purpose of assuring the owner of that obligation of its payment or (c) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not include
endorsements for collection or deposit in the ordinary course of the endorser's
business.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Immediate Family Member" of the Owner means at any time: any child or
grandchild (by blood or legal adoption) or spouse of the Owner at that time, or
any child of that spouse.
"Indebtedness" of any Person means, without duplication, (a) any
liability of that Person (i) for borrowed money or arising out of any extension
of credit to or for the account of that Person (including reimbursement or
payment obligations with respect to surety bonds, letters of credit, banker's
acceptances and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures or similar instruments,
(iii) in respect of Capital Leases or (iv) in respect of Interest Rate
Protection Agreements, (b) any liability secured by any Lien upon any property
or assets of that Person (or upon any revenues, income or profits of that Person
therefrom), whether or not that Person has assumed that liability or otherwise
become liable for the payment thereof or (c) any liability of others of the type
described in the preceding clause (a) or (b) in respect of which that Person has
incurred, assumed or acquired a liability by means of a Guaranty.
"Indemnified Party" has the meaning specified in Section 9.05.
"Indemnifying Party" has the meaning specified in Section 9.05.
"Indemnity Notice" has the meaning specified in Section 9.05.
"Information" means written information, including (a) data,
certificates, reports and statements (excluding Financial Statements) and (b)
summaries of unwritten agreements, arrangements, contracts, plans, policies,
programs or practices or of unwritten amendments or modifications of,
supplements to or waivers under any of the foregoing documents.
"IPO" means the first time after January 31, 1997 a registration
statement filed under the Securities Act and respecting a primary offering by
Apple of shares of Apple Common Stock
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(other than a registration statement respecting shares being offered pursuant to
an Owner ERISA Benefit Plan or any Other Compensation Plan) is declared
effective under the Securities Act and the shares registered by that
registration statement are issued and sold by Apple (otherwise than pursuant to
the exercise by the Underwriter of any over-allotment option).
"IPO Closing Date" means the date on which Apple first receives payment
for the shares of Apple Common Stock it sells to the Underwriter in the IPO.
"IPO Price" means the price per share of Apple Common Stock which is set
forth as the "price to public" on the cover page of the Final Prospectus.
"IPO Pricing Date" means the date, if any, on which Apple and the
Underwriter agree in the Underwriting Agreement to the price per share of Apple
Common Stock at which the Underwriter, subject to the terms and conditions of
the Underwriting Agreement, will purchase newly issued shares of Apple Common
Stock from Apple on the IPO Closing Date.
"IRS" means the Internal Revenue Service.
"Lien" means, with respect to any property or asset of any Person (or
any revenues, income or profits of that Person therefrom) (in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise), (a) any mortgage, lien, security interest, pledge,
attachment, levy or other charge or encumbrance of any kind thereupon or in
respect thereof or (b) any other arrangement under which the same is
transferred, sequestered or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
Section 8-302(b) of each applicable Uniform Commercial Code) in the case of any
Capital Stock. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any asset that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to that asset.
"Litigation" means any action, case, proceeding, claim, grievance, suit
or investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration proceeding.
"Material" means, as applied to any Entity, material to the business,
operations, property or assets, liabilities, financial condition or results of
operations of that Entity and its Subsidiaries considered as a whole.
"Material Adverse Effect" means, with respect to the consequences of any
fact or circumstance (including the occurrence or non-occurrence of any event)
to the Business considered as a whole (or after the IPO Closing Date, Apple)
that such fact or circumstance has caused, is causing or will cause, directly,
indirectly or consequentially, singly or in the aggregate with other facts and
circumstances, any Damages in excess of the Threshold Amount.
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"Material Agreement" of an Entity means any contract or agreement (a) to
which that Entity or any of its Subsidiaries is a party, or by which that Entity
or any of its Subsidiaries is bound or to which any property or assets of that
Entity or any of its Subsidiaries is subject and (b) which is Material to that
Entity.
"Minimum Cash Amount" has the meaning specified in Section 7.02.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Section 414(f) of the Code or Section 3(37) of ERISA.
"Organization State" means, as applied to (a) any corporation, its state
or other jurisdiction of incorporation, (b) any limited liability company or
limited partnership, the state or other jurisdiction under whose laws it is
organized and existing in that legal form, and (c) any other Entity, the state
or other jurisdiction whose laws govern that Entity's internal affairs.
"Orthodontics" means providing services related to the movement and
rearrangement of teeth.
"Other Agreements" has the meaning specified in the Preliminary
Statement in this Agreement.
"Other Compensation Plan" means any compensation arrangement, plan,
policy, practice or program relating to the Business established, maintained or
sponsored by the Owner, or to which the Owner contributes, on behalf of any of
his employees or other natural persons performing consulting or other
independent contractor services for the Owner, (a) including all such
arrangements, plans, policies, practices or programs providing for severance
pay, deferred compensation, incentive, bonus or performance awards or the actual
or phantom ownership of any Capital Stock or Derivative Securities of the Owner,
but (b) excluding all Owner ERISA Pension Plans and Employment Agreements.
"Other Financing Sources" has the meaning specified in Section 7.02.
"Other Transaction Documents" means the Other Agreements and the other
written agreements, documents, instruments and certificates at any time executed
pursuant to or in connection with the Other Agreements (other than the
Transaction Documents and the Underwriting Agreement), all as amended, modified
or supplemented from time to time.
"Owner" means any Person who owns any ownership interest in the
Business.
"Owner Commitment" has the meaning specified in Section 4.22.
"Owner ERISA Benefit Plan" has the meaning specified in Section 4.26.
"Owner ERISA Pension Plan" has the meaning specified in Section 4.26.
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"Owner Indemnified Loss" has the meaning specified in Section 9.04.
"Owner Indemnified Party" means the Owner and each of his employees,
agents and counsel.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Investments" means at the time of purchase or other
acquisition by the Owner (a) obligations issued or guaranteed by the United
States of America with a remaining maturity not exceeding one year, (b)
commercial paper with maturities of not more than 270 days and a published
rating of not less than A-1 by S&P or P-1 by Moody's and (c) certificates of
deposit and bankers' acceptances having maturities of not more than one year of
any commercial bank or trust company if (A) that bank or trust company has a
combined capital and surplus of at least $500,000,000 and (B) its unsecured
long-term debt obligations, or those of a holding company of which it is a
subsidiary, are rated not less than A- by S&P or A3 by Moody's.
"Permitted Liens" means, as applied to the property or assets of any
Person (or any revenues, income or profits of that Person therefrom): (a) Liens
for Taxes if the same are not at the time due and delinquent; (b) Liens incurred
in the ordinary course of that Person's business in connection with worker
compensation, unemployment insurance and other social security legislation
(other than pursuant to ERISA or Section 412(n) of the Code); (c) easements,
rights-of-way, reservations, restrictions and other similar encumbrances
incurred in the ordinary course of that Person's business or existing on
property and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (d) defects or irregularities in
that Person's title to its real properties which do not materially (i) diminish
the value of the surface estate or (ii) interfere with the ordinary conduct of
that Person's business or the use of any of such properties; (e) any interest or
title of a lessor of assets being leased by any Person pursuant to any Capital
Lease disclosed in Section 4.19 of the Disclosure Statement or any lease that,
pursuant to GAAP, would be accounted for as an operating lease; and (f) Liens
securing purchase money Indebtedness disclosed in Section 4.16 of the Disclosure
Statement so long as such Liens do not attach to any property or assets other
than the properties or assets purchased with the proceeds of such Indebtedness.
"Person" means any natural person, Entity, estate, trust, union or
employee organization or Governmental Authority or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"Plan" has the meaning specified in Section 4.27.
"Private Placement Memorandum" means the Apple Private Placement
Memorandum dated as of January 28, 1997 relating to the offer of Apple Common
Stock in connection with the Acquisition.
"Professional Codes" means any and all Governmental Requirements
relating to the licensing or other regulation of the business of providing
orthodontic care to patients.
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"Prohibited Transaction" means any transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Property, Plant and Equipment" means at any time any property that then
would be included and classified as property, plant and equipment on a
consolidated balance sheet prepared in accordance with GAAP of the Owner
relating to the Business.
"Proprietary Rights" means (a) patents, applications for patents and
patent rights, (b) in each case, whether registered, unregistered or under
pending registration, trademark rights, trade names, trade name rights,
corporate names, business names, trade styles or dress, service marks and logos
and other trade designations and copyrights and (c), in the case of the Owner,
all agreements relating to the technology, know-how or processes used in the
Business.
"Qualified Plans" has the meaning specified in Section 4.27.
"RCRA" means the Resource Conservation and Recovery Act of 1976.
"Registration Rights Agreement" means the registration rights agreement
to be executed and delivered at the Closing by Apple and the Owner, electing to
be parties thereto in the form of Exhibit 7.03(b)(iv), with the blanks
appropriately filled.
"Registration Statement" means the registration statement, including (a)
each preliminary prospectus included therein prior to the date on which that
registration statement is declared effective under the Securities Act (including
any prospectus filed with the SEC pursuant to Securities Act Rule 424(b)), (b)
the Final Prospectus and (c) any amendments thereof and all supplements and
exhibits thereto, filed by Apple with the SEC to register shares of Apple Common
Stock under the Securities Act for public offering and sale in the IPO.
"Related Party Agreement" means any contract or other agreement, written
or oral, (a) to which the Owner is a party or is bound or by which any property
of the Owner relating to the Business is bound or may be subject and (b) (i) to
which the Owner or any of the Owner's Related Persons or Affiliates also is a
party, (ii) of which the Owner or the Owner's Related Persons or Affiliates is a
beneficiary or (iii) as to which any transaction contemplated thereby properly
would be characterized (without regard to the amount involved) as a related
party transaction for purposes of applying the disclosure requirements of GAAP
or the SEC applicable to the Registration Statement.
"Related Person" of the Owner means: (i) any Immediate Family Member of
the Owner, (ii) any Estate of the Owner or any Immediate Family Member of the
Owner, (iii) the trustee of any inter vivos or testamentary trust of which all
the beneficiaries are Related Persons of the Owner and (iv) any Entity the
entire equity interest in which is owned by any one or more of the Owner and
Related Persons of the Owner. As used in this definition, "Estate" means, as to
any natural person who has died or been adjudicated mentally incompetent by a
court of competent jurisdiction, (i) that person's estate or (ii) the
administrator, conservator, executor, guardian or representative of that estate.
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"Reportable Event" means, with respect to any Owner ERISA Pension Plan,
(a) the occurrence of any of the events set forth in Section 4043(b) or (c)
(other than a Reportable Event as to which the provision of 30 days' notice to
the PBGC is waived under applicable regulations), 4062(e) or 4063(a) of ERISA
with respect to that plan, (b) any event requiring the Owner or any ERISA
Affiliate to provide security to that plan under Section 401(a)(29) of the Code
or (c) any failure to make a payment required by Section 412(m) of the Code with
respect to that plan.
"Representatives" means, with respect to any Person, the directors,
officers, employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants or other agents of that
Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"Restricted Payment" means, with respect to any Entity at any time, any
of the following effected by that Entity: (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any Capital
Stock of that Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase or other acquisition for value of, or
any direct or indirect purchase, payment or sinking fund or similar deposit for
the redemption, retirement, purchase or other acquisition for value of, or to
obtain the surrender of, any then outstanding Capital Stock of that Entity or
any Affiliate of that Entity or any then outstanding warrants, options or other
rights to acquire or subscribe for or purchase unissued or treasury Capital
Stock of that Entity or any Affiliate of that Entity.
"Returns" means the returns, reports or statements (including any
information returns) any Governmental Requirement requires to be filed for
purposes of any Tax.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Security Agreement" has the meaning set forth in the Service Agreement.
"Solid Wastes, Hazardous Wastes or Hazardous Substances" have the
meanings ascribed to those terms in CERCLA, RCRA or any other Environmental Law
applicable to the business or operations of the Owner which imparts a broader
meaning to any of those terms than does CERCLA or RCRA.
"S&P" means Standard and Poor's Rating Group.
"Subsidiary" of any specified Person at any time, means any entity a
majority of the Capital Stock of which is at that time owned or controlled,
directly or indirectly, by the specified Person.
"Supplemental Information" has the meaning specified in Section 6.08.
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"Tax" or "Taxes" means all net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges or assessments of any nature whatever imposed by
any Governmental Requirement, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Taxing Authority" means any Governmental Authority having or purporting
to exercise jurisdiction with respect to any Tax.
"Termination Event" means, with respect to any Owner ERISA Pension Plan,
(a) any Reportable Event with respect to that plan which is likely to result in
the termination of that plan, (b) the termination of, or the filing of a notice
of intent to terminate, that plan or the treatment of any amendment to that plan
as a termination under Section 4041(c) of ERISA or (c) the institution of
proceedings to terminate, or the appointment of a trustee to administer, that
plan under Section 4042 of ERISA.
"Third Party Claim" has the meaning specified in Section 9.05.
"Transaction Document" means this Agreement, the Registration Rights
Agreement, the Service Agreement, the Security Agreement and the other written
agreements, documents, instruments and certificates executed pursuant to or in
connection with this Agreement (other than the Other Transaction Documents and
the Underwriting Agreement), including those specified in Article VII to be
delivered at or before the Closing, all as amended, modified or supplemented
from time to time.
"Underwriter" means collectively (a) the investment banking firms that
prospectively may enter into the Underwriting Agreement and (b) from and after
the IPO Pricing Date, the investment banking firms parties to the Underwriting
Agreement.
"Underwriting Agreement" has the meaning specified in Section 7.02.
"Welfare Plan" means an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
Section 1.03 OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise
specified herein, all references herein to any Governmental Requirement defined
or referred to herein, including the Code, CERCLA, ERISA, the Exchange Act, RCRA
and the Securities Act, shall be deemed references to that Governmental
Requirement or any successor Governmental Requirement, as the same may have been
amended or supplemented from time to time, and any rules or regulations
promulgated thereunder.
(b) When used in this Agreement, the words "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any provision of this Agreement, and the words "Article," "Section,"
"Addendum," "Annex" and "Exhibit" refer to
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Articles and Sections of, and Addenda, Annexes and Exhibits to, this Agreement
unless otherwise specified.
(c) Whenever the context so requires, the singular number includes the
plural and vice versa, and a reference to one gender includes the other gender
and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any description
preceding such word, and the words "shall" and "will" are used interchangeably
and have the same meaning.
Section 1.04 CAPTIONS. Captions to Articles, Sections and subsections
of, and Addenda, Annexes and Exhibits to, this Agreement or any other
Transaction Document are included for convenience of reference only, and such
captions shall not constitute a part of this Agreement or any other Transaction
Document for any other purpose or in any way affect the meaning or construction
of any provision of this Agreement or any other Transaction Document.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.02 [INTENTIONALLY LEFT BLANK].
Section 3.03 [INTENTIONALLY LEFT BLANK].
Section 3.04 NO CONFLICTS OR LITIGATION. The execution, delivery and
performance in accordance with their respective terms by the Owner of this
Agreement and the other Transaction Documents to which the Owner is a party do
not and will not (a) violate or conflict with any Governmental Requirement or
(b) breach or constitute a default under any agreement or instrument to which
the Owner is a party or by which the Owner is bound. No Litigation is pending
or, to the knowledge of the Owner, threatened to which the Owner is or may
become a party which (a) questions or involves the validity or enforceability of
any of the Owner's obligations under any Transaction Document or (b) seeks (or
reasonably may be expected to seek) (i) to prevent or delay the consummation by
the Owner of the transactions contemplated by this Agreement to be consummated
by the Owner or (ii) damages in connection with any consummation by the Owner of
the transactions contemplated by this Agreement.
Section 3.05 NO BROKERS. Except as disclosed in the Private Placement
Memorandum or in Section 11.03 of the Disclosure Statement, the Owner has not,
directly or indirectly, in connection with this Agreement or the transactions
contemplated hereby (a) employed any broker, finder or agent (other than a
Purchaser Representative) or (b) agreed to pay or incurred any obligation to pay
any broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 3.06 [INTENTIONALLY LEFT BLANK].
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Section 3.07 CONTROL OF RELATED BUSINESSES. Except as accurately set
forth in Schedule 3.07 of the Disclosure Statement, the Owner is not, alone or
with one or more other Persons, the controlling Affiliate of any Entity,
business or trade (other than the Business) that (a) is engaged in any line of
business which is the same as or similar to the Business or (b) is, or has
within the three-year period ending on the date of this Agreement, engaged in
any transaction with the Business, except for transactions in the ordinary
course of business of the Business.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF
THE OWNER
Section 4.02 LOCATIONS. Section 4.02 of the Disclosure Statement
accurately lists all the jurisdictions in which the Owner carries on the
Business as now conducted, and the Owner does not own, lease or operate
properties or carry on the Business in any jurisdiction not listed in that
Section which is Material to the Business.
Section 4.03 POWER; ENFORCEABILITY; ABSENCE OF CONFLICTS; REQUIRED
CONSENTS. (a) The Owner has the full power, legal capacity and authority to
execute and deliver this Agreement and each other Transaction Document to which
the Owner is a party and to perform the Owner's obligations in this Agreement
and in all other Transaction Documents to which the Owner is a party.
(b) This Agreement has been, and each of the other Transaction Documents
to which the Owner is a party, when executed and delivered to Apple will have
been, duly executed and delivered by the Owner and is, or when so executed and
delivered will be, the legal, valid and binding obligation of the Owner,
enforceable against the Owner in accordance with its terms, except as that
enforceability may be (i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law).
(c) Except as set forth in Section 4.03 of the Disclosure Statement, the
execution, delivery and performance in accordance with their respective terms by
the Owner of the Transaction Documents to which he is a party have not and will
not (i) violate, breach or constitute a default under any Material Agreement of
the Owner, (ii) result in the acceleration or mandatory prepayment of any
Indebtedness, or any Guaranty not constituting Indebtedness, of the Owner or
afford any holder of any of that Indebtedness, or any beneficiary of any of
those Guaranties, the right to require the Owner to redeem, purchase or
otherwise acquire, reacquire or repay any of that Indebtedness, or to perform
any of those Guaranties, (iii) cause or result in the imposition of, or afford
any Person the right to obtain, any Lien upon any property or assets of the
Owner (or upon revenues, income or profits of the Owner therefrom) or (iv)
result in the revocation, cancellation, suspension or material modification, in
any single case or in the aggregate, of any Governmental Approval possessed by
the Owner at the date hereof and
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necessary for the ownership or lease or the operation of his properties or the
carrying on of his business as now conducted, including any necessary
Governmental Approval under each applicable Environmental Law and Professional
Code.
(d) Except (i) for filings of the Registration Statement under the
Securities Act and the SEC order declaring the Registration Statement effective
under the Securities Act and (ii) as may be required by the HSR Act or the
applicable state securities or blue sky laws, no Governmental Approvals are
required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by the Owner for the execution,
delivery or performance by the Owner of the Transaction Documents to which he is
a party, the enforcement against the Owner of his obligations thereunder or the
effectuation of the Acquisition and the other transactions contemplated thereby.
Section 4.04 [INTENTIONALLY LEFT BLANK].
Section 4.05 NO DEFAULTS. No condition or state of facts exists, or,
with the giving of notice or the lapse of time or both, would exist, which (a)
entitles any holder of any outstanding Indebtedness, or any Guaranty not
constituting Indebtedness, of the Owner, or a representative of that holder, to
accelerate the maturity, or require a mandatory prepayment, of that Indebtedness
or Guaranty, or affords that holder or its representative, or any beneficiary of
that Guaranty, the right to require the Owner to redeem, purchase or otherwise
acquire, reacquire or repay any of that Indebtedness, or to perform that
Guaranty in whole or in part, (b) entitles any Person to obtain any Lien (other
than a Permitted Lien) upon any properties or assets of the Owner relating to
the Business (or upon revenues, income or profits of any of the Owner therefrom)
or (c) constitutes a violation or breach of, or a default under, any Material
Agreement of the Owner by the Owner.
Section 4.06 [INTENTIONALLY LEFT BLANK].
Section 4.07 [INTENTIONALLY LEFT BLANK].
Section 4.08 [INTENTIONALLY LEFT BLANK].
Section 4.09 [INTENTIONALLY LEFT BLANK].
Section 4.10 PREDECESSOR STATUS; ETC. Section 4.10 of the Disclosure
Statement accurately lists all the legal and assumed names of all predecessor
companies for the past five years of the Business, including the names of any
Entities from which the Business previously acquired material assets. Except as
accurately disclosed in Section 4.10 of the Disclosure Statement, the Business
has not been a Subsidiary or division of another corporation or a part of an
acquisition that later was rescinded.
Section 4.11 RELATED PARTY AGREEMENTS. Except as set forth in Section
4.11 of the Disclosure Statement, each Related Party Agreement in effect on the
date hereof will have been terminated as of the IPO Closing Date.
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Section 4.12 LITIGATION. Except as accurately disclosed in Section 4.12
of the Disclosure Statement, no Litigation is pending or, to the knowledge of
the Owner, threatened to which the Owner is or may become a party.
Section 4.13 FINANCIAL STATEMENTS; DISCLOSURE. (a) FINANCIAL STATEMENTS.
(i) The Financial Statements (including in each case the related schedules and
notes) delivered to Apple present fairly, in all material respects, the
consolidated financial position of the Business at the respective dates of the
balance sheets included therein and the consolidated results of its operations
and its consolidated cash flows and owners' equity for the respective periods
set forth therein and have been prepared in accordance with GAAP. As of the date
of any balance sheet included in those Financial Statements, the Business then
did not have any outstanding Indebtedness to any Person or any liabilities of
any kind (including contingent obligations, tax assessments or unusual forward
or long-term commitments), or any unrealized or anticipated loss, which in the
aggregate then were Material to the Business and required to be reflected in
those Financial Statements or in the notes related thereto in accordance with
GAAP which were not so reflected.
(ii) Since the Current Balance Sheet Date, no change has occurred in the
business, operations, properties or assets, liabilities, condition (financial or
other) or results of operations of the Business that could reasonably be
expected, either alone or together with all other such changes, to have a
Material Adverse Effect on the Business.
(iii) All financial budgets and projections that have been or are
hereafter from time to time prepared by the Owner or any of his Representatives
and made available prior to the IPO Closing Date to Apple pursuant to or in
connection with this Agreement, any other Transaction Document or the
transactions contemplated hereby or thereby have been and will be prepared and
furnished to Apple in good faith and were and will be based on facts and
assumptions that are believed by the Owner to be reasonable in light of the then
current and foreseeable business conditions of the Business and represented and
will represent the Owner's good faith estimate of the consolidated projected
financial performance of the Business based on the information available to the
Owner at the time so furnished.
Section 4.14 COMPLIANCE WITH LAWS. (a) Except as accurately disclosed in
Section 4.14 of the Disclosure Statement: (i) the Owner possesses, if required
by the applicable Governmental Requirement, Governmental Approvals required for
the conduct of the Business; and (ii) the Owner is, and to the knowledge of the
Owner his employees are, in compliance in all material respects with the terms
and conditions of all Governmental Approvals necessary for the ownership or
lease and the operation of the properties relating to the Business (including
all the facilities and sites he owns or holds under any lease relating to the
Business) and the carrying on of the Business as now conducted. The Owner has
provided Apple with an accurate, complete written list of all the Governmental
Approvals so possessed. To the knowledge of the Owner, all the Governmental
Approvals so listed are valid, and, except as accurately disclosed in Section
4.14 of the Disclosure Statement, the Owner has not received, nor to the
knowledge of the Owner has any employee of the Owner received, any notice from
any Governmental Authority of its intention to cancel, terminate or not renew
any of those Governmental Approvals.
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(b) Except as accurately disclosed in Section 4.14 of the Disclosure
Statement, the Owner: (i) to the knowledge of the Owner, has been and continues
to be in compliance with all Governmental Requirements applicable to him or any
of his presently or previously owned or operated properties (including all the
facilities and sites now or previously owned or held by him under any lease),
businesses or operations, including all applicable Governmental Requirements
under ERISA, Environmental Laws and Professional Codes; and (ii)(A) the Owner
has not received, nor to the knowledge of the Owner, the Owner has any employee
of the Owner received, any notice from any Governmental Authority which asserts,
or raises the possibility of assertion of, any noncompliance with any of those
Governmental Requirements and, to the knowledge of the Owners (B) no condition
or state of facts exists which would provide a valid basis for any such
assertion.
Section 4.15 CERTAIN ENVIRONMENTAL MATTERS. Except as accurately
disclosed in Section 4.15 of the Disclosure Statement: (a) to the knowledge of
the Owner, the Owner has complied, and remains in compliance, to the knowledge
of the Owner, with the provisions of all Environmental Laws applicable to the
Owner or any of his presently owned or operated facilities, sites or other
properties, businesses and operations and which relate to the reporting by the
Owner of all sites presently owned or operated by any of them where Solid
Wastes, Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (b) no release (as defined in those
Environmental Laws) at, from, in or on any site owned or operated by the Owner
has occurred which, if all relevant facts were known to the relevant
Governmental Authorities, reasonably could be expected to require remediation to
avoid deed record notices, restrictions, liabilities or other consequences that
would not be applicable if that release had not occurred; (c) the Owner has not
(nor has any agent or contractor of the Owner) transported or arranged for the
transportation of any Solid Wastes, Hazardous Wastes or Hazardous Substances to,
or disposed or arranged for the disposition of any Solid Wastes, Hazardous
Wastes or Hazardous Substances at, any off-site location that could lead to any
claim against the Owner or Apple, as a potentially responsible party or
otherwise, for any clean-up costs, remedial work, damage to natural resources,
personal injury or property damage, including any claim under CERCLA; and (d) no
storage tanks exist on or under any of the properties owned or operated by the
Owner from which any Solid Wastes, Hazardous Wastes or Hazardous Substances have
been released into the surrounding environment. The Owner has provided Apple
with copies (or if not available, accurate written summaries) of all
environmental investigations, studies, audits, reviews and other analyses
conducted by or on behalf, or which otherwise are in the possession, of the
Owner respecting any facility, site or other property presently owned or
operated by the Owner.
Section 4.16 LIABILITIES AND OBLIGATIONS. Section 4.16 of the Disclosure
Statement accurately lists all present liabilities, of every kind, character and
description and whether accrued, absolute, fixed, contingent or otherwise, of
the Owner relating to the Business which (a) (i) exceed or reasonably could be
expected to exceed $1,000 and (ii) (A) had been incurred prior to the Current
Balance Sheet Date, but are not reflected on the Current Balance Sheet, or (B)
were incurred after the Current Balance Sheet otherwise than in the ordinary
course of business, and consistent with the past practice, of that Entity. That
Section also accurately lists and describes, for the Owner relating to the
Business: (a) each of his outstanding secured and unsecured Guaranties not
constituting his Indebtedness and, for each of those Guaranties,
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whether any Related Person or Affiliate of the Owner is a Person whose
obligation is covered by that Guaranty, and (b) for each of the items listed
under clause (a) of this sentence, (i) if that item is secured by any property
or asset of the Owner, the nature of that security, and (ii) if that item is
covered in whole or in part by a Guaranty of any Related Person or Affiliate of
the Owner, the name of the guarantor.
Section 4.17 RECEIVABLES. Except as accurately set forth in Section 4.17
of the Disclosure Statement; all the accounts and notes or other advances
receivable of the Owner reflected on the Current Balance Sheet were collected,
or are, in the good faith belief of the Owner, collectible, in the respective
amounts so reflected, net of the reserves, if any, reflected in the Current
Balance Sheet.
Section 4.18 OWNED AND LEASED REAL PROPERTIES. (a) Section 4.18 of the
Disclosure Statement accurately lists and correctly describes in all material
respects: (i) all real properties owned by the Owner relating to the Business
and, for each of those properties, the address thereof, the type and square
footage of each structure located thereon and the use thereof in the Business;
(ii) all real properties relating to the Business of which the Owner is the
lessee and, for each of those properties, the address thereof, the type and
square footage of each structure located thereon the Owner is leasing and the
expiration date of his lease and the use thereof in the Business; and (iii) in
the case of each real property listed as being owned, whether it was previously
owned, and in the case of each real property listed as being leased, whether it
is presently owned, by any of the Owner's Related Persons or Affiliates.
(b) The Owner has provided Apple with true, complete and correct copies
of all title reports and insurance policies owned or in the possession of the
Owner and relating to any of the real properties listed as being owned in
Section 4.18 of the Disclosure Statement. Except as accurately set forth in that
Section or those reports and policies, and except for Permitted Liens, the Owner
owns in fee, and has good, valid and marketable title to, free and clear of all
Liens, each property listed in that Section as being owned.
(c) The Owner has provided Apple with true, correct and complete copies
of all leases under which the Owner is leasing each of the properties listed in
Section 4.18 of the Disclosure Statement as being leased and, except as
accurately set forth in Section 4.18 of the Disclosure Statement, (i) each of
those leases is, to the knowledge of the Owner, valid and binding on the lessor
party thereto, and (ii) the lessee party thereto has not sublet any of the
leased space to any Person other than the Owner.
(d) The fixed assets of the Owner relating to the Business are affixed
only to one or more of the real properties listed in Section 4.18 of the
Disclosure Statement and, except as accurately set forth in that Section, are
well-maintained and adequate for the purposes for which they presently are being
used or held for use, ordinary wear and tear excepted.
(e) The Owner has accurately disclosed in Section 4.18 of the Disclosure
Statement in all material respects all plans or projects relating to the
Business involving the opening of new operations, the expansion of any existing
operations or the acquisition of any real property or existing business, with
respect to which the Owner has made any expenditure in the two-year
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period prior to the date of the Agreement in excess of $1,000, or which if
pursued by the Owner would require additional capital expenditures in excess of
$1,000.
Section 4.19 OWNED AND LEASED PROPERTY, PLANT AND EQUIPMENT. (a) The
Owner has provided Apple with a list accurate and complete in all material
respects of the Property, Plant and Equipment owned and leased by the Owner,
which list states, in the case of each of those properties listed as being
owned, whether it was previously owned, and in the case of each of those
properties listed as being leased, whether it is presently owned, by any of the
Owner's Related Persons or Affiliates.
(b) Except as accurately set forth in Section 4.19 of the Disclosure
Statement and except for Permitted Liens, the Owner has good, valid and
marketable title to, free and clear of all Liens, the Acquired Assets.
(c) The Owner has provided Apple with true, correct and complete copies
of all leases under which the Owner is leasing each of the properties listed in
Section 4.21 of the Disclosure Statement as being leased and all leases referred
to in Section 4.19 and, except as accurately set forth in Section 4.19 of the
Disclosure Statement, (i) each of those leases is, to the knowledge of the
Owner, valid and binding on the lessor party thereto, and (ii) the lessee party
thereto has not sublet any of the leased property to any Person other than the
Owner.
(d) Except as accurately set forth in Section 4.19 of the Disclosure
Statement, all the Property, Plant and Equipment listed therein are in good
working order and condition, ordinary wear and tear excepted, and adequate for
the purposes for which they presently are being used or held for use.
Section 4.20 PROPRIETARY RIGHTS. Except as accurately set forth in
Section 4.20 of the Disclosure Statement, the Owner owns or has the legal right
to use all Proprietary Rights that are necessary to the conduct of the Business
as now conducted, in each case free of any claims or infringements known to the
Owner. Section 4.20 of the Disclosure Statement accurately (a) lists these
Proprietary Rights and (b) indicates those owned by the Owner and, for those not
listed as so owned, the agreement or other arrangement pursuant to which they
are possessed. Except as accurately set forth in that Section, (a) no consent of
any Person will be required for the use of any of these Proprietary Rights by
Apple or any Subsidiary of Apple following the IPO Closing Date and (b) no
governmental registration of any of these Proprietary Rights has lapsed or
expired or been canceled, abandoned, opposed or the subject of any reexamination
request.
Section 4.21 TITLE TO OTHER PROPERTIES. In each case, free and clear of
all Liens except for Permitted Liens and as accurately set forth in Section 4.21
of the Disclosure Statement, the Owner has good and valid title to, or holds
under a lease valid and binding on the lessor party thereto, all the Owner's
tangible personal properties and assets (other than Property, Plant and
Equipment) that individually is or in the aggregate are Material to the
Business.
Section 4.22 COMMITMENTS. (a) Except as accurately set forth in Section
4.22(a) of the Disclosure Statement, the Owner has provided Apple with a
complete, accurate list of each of
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the following (each an "Owner Commitment") to which the Owner is a party
relating to the Business or by which any of its properties is bound and which
presently remains executory in whole or in any part:
(i) each partnership, joint venture or cost-sharing agreement;
(ii) each guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iii) each instrument, agreement or other obligation evidencing or
relating to Indebtedness of the Owner or to money lent or to be
lent to another Person;
(iv) each contract to purchase or sell real property;
(v) each agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments
within any 12-month period in excess of $5,000 and which is not
terminable without penalty and on no more than 30 days' prior
notice;
(vi) each Related Party Agreement involving total payments within any
12-month period in excess of $1,000 and which is not terminable
without penalty on no more than 30 days' prior notice;
(vii) each agreement for the acquisition or provision of services,
supplies, equipment, inventory, fixtures or other property
involving more than $1,000 in the aggregate;
(viii) each contract containing any noncompetition agreement, covenant
or undertaking;
(ix) each agreement providing for the purchase from a supplier of all
or substantially all the requirements of the Owner of a
particular product or service; or
(x) each other agreement or commitment not made in the ordinary
course of business or that is Material to the Business.
True, correct and complete copies of all written Owner Commitments, and
true, correct and complete written descriptions of all oral Owner Commitments,
have heretofore been delivered or made available to Apple. Except as accurately
set forth in Section 4.22(a) of the
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Disclosure Statement: (i) there are no existing or asserted defaults, events of
default or events, occurrences, acts or omissions that, with the giving of
notice or lapse of time or both, would constitute defaults or events of default
under any Owner Commitment Material to the Business by the Owner or, to the
knowledge of the Owner, any other party thereto; and (ii) no penalties have been
incurred, nor are amendments pending, with respect to the Owner Commitments
Material to the Business. The Owner Commitments are in full force and effect and
are valid and enforceable obligations of the Owner and, to the knowledge of the
Owner, the other parties thereto in accordance with their respective terms, and
no defenses, off-sets or counterclaims have been asserted or, to the knowledge
of the Owner, may be made by any party thereto (other than by the Business), nor
has the Owner waived any rights thereunder, except as accurately described in
Section 4.22(a) of the Disclosure Statement.
(b) Except as accurately disclosed in Section 4.22(b) of the Disclosure
Statement or contemplated hereby or by any other Transaction Document to which
the Owner is a party: (i) the Owner has not received notice of any plan or
intention of any other party to any Owner Commitment to exercise any right to
cancel or terminate any Owner Commitment, and the Owner knows of no condition or
state of facts which would justify the exercise of such a right; and (ii) the
Owner does not currently contemplate, and has no reason to believe any other
Person currently contemplates, any amendment or change to any Owner Commitment.
Section 4.23 CAPITAL EXPENDITURES. Section 4.23 of the Disclosure
Statement accurately sets forth the total amount of capital expenditures
currently budgeted to be incurred by the Owner relating to the Business during
the balance of the Business' current fiscal year. Except as accurately set forth
in that Section, to the knowledge of the Owner, no condition or state of facts
exists which will cause the total capital expenditures of the Owner which will
be required to replace worn-out Property, Plant and Equipment in any of the
Business' five fiscal years following that current fiscal year to exceed by a
material amount the amount budgeted for capital expenditures of that type by the
Owner for that current fiscal year in order to maintain the types and levels of
patients and services the Owner presently provides.
Section 4.24 INVENTORIES. Except as accurately set forth in Section 4.24
of the Disclosure Statement: (a) all inventories, net of reserves determined in
accordance with GAAP, of the Business which are classified as such on the
Current Balance Sheet are, to the knowledge of the Owner, merchantable and
salable or usable in the ordinary course of business of the Owner; (b) the
inventories reflected in the Financial Statements, as at the Current Balance
Sheet Date, (i) were reasonable in relation to the then existing circumstances
of the Business and classified as current assets in accordance with GAAP, (ii)
were consistent with its past practices and (iii) fairly reflected the average
inventory levels maintained during the 12-month periods ended on that date; and
(c) the Owner does not depend on any single vendor for its inventories the loss
of which could have a Material Adverse Effect on the Business and the Owner has
not sustained a difficulty Material to the Business in obtaining its
inventories.
Section 4.25 INSURANCE. Except as accurately set forth in Section 4.25
of the Disclosure Statement: (a) the Owner has provided Apple with: (i) a list
accurate as of the Current Balance Sheet Date of all insurance policies then
carried by the Owner relating to the Business; (ii) an accurate list of all
insurance loss runs and worker's compensation claims
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received for the most recently ended three policy years; and (iii) true,
complete and correct copies of all insurance policies carried by the Owner
relating to the Business which are in effect, all of which (A) have been issued
by insurers of recognized responsibility and (B) currently are, and will remain
without interruption through the IPO Closing Date, in full force and effect; (b)
no insurance carried by the Owner relating to the Business has been canceled by
the insurer during the past five years, and the Owner has never been denied
coverage; and (c) the Owner has not received any notice or other communication
from any issuer of any such insurance policy of any material increase in any
deductibles, retained amounts or the premiums payable thereunder, and, to the
knowledge of the Owner, no such increase in deductibles, retainages or premiums
is threatened.
Section 4.26 EMPLOYEE MATTERS. (a) CASH COMPENSATION. The Owner has
provided Apple with an accurate, complete written list of the names, titles and
rates of annual Cash Compensation, at the Current Balance Sheet Date and at the
date hereof (and the portions thereof attributable to salary or the equivalent,
fixed bonuses, discretionary bonuses and other Cash Compensation, respectively)
of all employees and key consultants and independent contractors of the Owner
relating to the Business.
(b) Employment Agreement. Section 4.26(b) of the Disclosure Statement
accurately lists all Employment Agreements remaining executory in whole or in
part on the date hereof, and the Owner has provided Apple with true, complete
and correct copies of all those Employment Agreements. The Owner is not a party
to any oral Employment Agreement.
(c) OTHER COMPENSATION PLANS. Section 4.26(c) of the Disclosure
Statement accurately lists all Other Compensation Plans either remaining
executory at the date hereof or to become effective after the date hereof. The
Owner has provided Apple with a true, correct and complete copy of each of those
Other Compensation Plans that is in writing and an accurate description of each
of those Other Compensation Plans that is not written. Except as accurately set
forth in Section 4.26(c) of the Disclosure Statement, each of the Other
Compensation Plans, including each that is a Welfare Plan, may be unilaterally
amended or terminated by the Owner without liability to any of them, except as
to benefits accrued thereunder prior to that amendment or termination.
(d) ERISA BENEFIT PLANS. Section 4.26(d) of the Disclosure Statement
accurately (i) lists each ERISA Pension Benefit Plan (A)(1) the funding
requirements of which (under Section 301 of ERISA or Section 412 of the Code)
are, or at any time during the six-year period ending on the date hereof were,
in whole or in part, the responsibility of the Owner or (2) respecting which the
Owner is, or at any time during that period was, a "contributing sponsor" or an
"employer" as defined in Sections 4001(a)(13) and 3(5), respectively, of ERISA
(each plan described in this clause (A) being an "Owner ERISA Pension Plan"),
(B) each other ERISA Pension Benefit Plan respecting which an ERISA Affiliate
is, or at any time during that period was, such a "contributing sponsor" or
"employer" (each plan described in this clause (B) being an "ERISA Affiliate
Pension Plan") and (C) each other ERISA Employee Benefit Plan that is being, or
at any time during that period was, sponsored, maintained or contributed to by
the Owner (each plan described in this clause (C) and each Owner ERISA Pension
Plan being an "Owner ERISA Benefit Plan"), (ii) states the termination date of
each Owner ERISA Benefit
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Plan and ERISA Affiliate Pension Plan that has been terminated and (iii)
identifies for each ERISA Affiliate Pension Plan the relevant ERISA Affiliates.
The Owner has provided Apple with (i) true, complete and correct copies of (A)
each Owner ERISA Benefit Plan and ERISA Affiliate Pension Plan, (B) each trust
agreement related thereto and (C) all amendments to those plans and trust
agreements. Except as accurately set forth in Section 4.26(d) of the Disclosure
Statement, (i) the Owner is not, nor at any time during the six-year period
ended on the date hereof was, a member of any ERISA Group and (ii) no Person is
an ERISA Affiliate of the Owner.
(e) EMPLOYEE POLICIES AND PROCEDURES. Section 4.26(e) of the Disclosure
Statement accurately lists all Employee Policies and Procedures. The Owner has
provided Apple with a copy of all written Employee Policies and Procedures and a
written description of all material unwritten Employee Policies and Procedures.
(f) UNWRITTEN AMENDMENTS. Except as accurately described in Section
4.26(f) of the Disclosure Statement, no material unwritten amendments have been
made, whether by oral communication, pattern of conduct or otherwise, with
respect to any of the Employment Agreements, Other Compensation Plans or
Employee Policies and Procedures.
(g) LABOR COMPLIANCE. To the knowledge of the Owner, the Owner has been
and is in compliance with all applicable Governmental Requirements respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and the Owner is not liable for any arrears of wages or
penalties for failure to comply with any of the foregoing. The Owner has not
engaged in any unfair labor practice or discriminated on the basis of race,
color, religion, sex, national origin, age, disability or handicap in his
employment conditions or practices. Except as accurately set forth in Section
4.26(g) of the Disclosure Statement, there are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, age,
disability or handicap discrimination charges or complaints pending or, to the
knowledge of the Owner, threatened against the Owner before any Governmental
Authority (nor, to the knowledge of the Owner, does any valid basis therefor
exist) or (ii) existing or, to the knowledge of the Owner, threatened labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Owner (nor, to the knowledge of the Owner, does any valid basis therefor
exist).
(h) UNIONS. Neither the Owner nor any ERISA Affiliate has ever been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Owner are represented by any union, labor
organization or collective bargaining unit. Except as accurately set forth in
Section 4.26(h) of the Disclosure Statement, to the knowledge of the Owner, none
of the employees of the Owner have threatened to organize or join a union, labor
organization or collective bargaining unit.
(i) NO ALIENS. All employees of the Owner are citizens of, or are
authorized in accordance with federal immigration laws to be employed in, the
United States.
(j) CHANGE OF CONTROL BENEFITS. Except as accurately set forth in
Section 4.26(j) of the Disclosure Statement, the Owner is not a party to any
agreement, nor has
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he established any policy, practice or program, requiring the Owner to make a
payment or provide any other form of compensation or benefit or vesting rights
to any person performing services for the Owner which would not be payable or
provided in the absence of this Agreement or the consummation of the
transactions contemplated by this Agreement, including any parachute payment
under Section 280G of the Code.
(k) RETIREES. The Owner does not have any obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of his
employees who may retire or any of his former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable parallel provisions of ERISA.
Section 4.27 COMPLIANCE WITH ERISA, ETC. (a) COMPLIANCE. Each of the
Owner ERISA Benefit Plans and Other Compensation Plans (each, a "Plan") (i) is
in substantial compliance with all applicable provisions of ERISA, as well as
with all other applicable Governmental Requirements, and (ii) has been
administered, operated and managed in accordance with its governing documents.
(b) QUALIFICATION. All Plans that are intended to qualify under Section
401(a) of the Code (the "Qualified Plans") are so qualified and have been
determined by the IRS to be so qualified (or application for determination
letters have been timely submitted to the IRS). The Owner has provided Apple
with true, complete and correct copies of the current plan determination
letters, most recent actuarial valuation reports, if any, most recent Form 5500,
or, as applicable, Form 5500-C/R, filed with respect to each such Qualified Plan
and most recent trustee or custodian report. To the extent that any Qualified
Plans have not been amended to comply with applicable Governmental Requirements,
the remedial amendment period permitting retroactive amendment of these
Qualified Plans has not expired and will not expire within 120 days after the
IPO Closing Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including annual reports, summary annual reports, actuarial reports, PBGC-1
Forms, audits or Returns) have been timely filed or distributed.
(c) NO PROHIBITED TRANSACTIONS, ETC. Neither the Owner nor any Plan has
engaged in any Prohibited Transaction. No Plan has incurred an accumulated
funding deficiency, as defined in Section 412(a) of the Code and Section 302(a)
of ERISA, and no circumstances exist pursuant to which the Owner could have any
direct or indirect liability whatsoever (including being subject to any
statutory Lien to secure payment of any such liability), to the PBGC under Title
IV of ERISA or to the IRS for any excise tax or penalty with respect to any Plan
now or hereafter maintained or contributed to by the Owner or any of his ERISA
Affiliates. Further:
(i) there have been no terminations, partial terminations or
discontinuances of contributions to any Qualified Plan without a
determination by the IRS that such action does not adversely
affect the tax-qualified status of that plan;
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(ii) no Termination Event has occurred;
(iii) no Reportable Event has occurred with respect to any Plan which
was not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the IPO
Closing Date, shall equal or exceed the actuarial present value
of all "benefit liabilities" (within the meaning of Section
40001(a)(16) of ERISA) under that plan in accordance with the
assumptions contained in the Regulations of the PBGC governing
the funding of terminated defined benefit plans;
(v) with respect to Plans qualifying as "group health plans" under
Section 4980B of the Code or Section 607(l) or 609 of ERISA and
related regulations (relating to the benefit continuation rights
imposed by COBRA or qualified medical child support orders), the
Owner has complied (and at the IPO Closing Date will have
complied) in all material respects with all reporting,
disclosure, notice, election and other benefit continuation and
coverage requirements imposed thereunder as and when applicable
to those plans, and the Owner has not incurred (and will not
incur) any direct or indirect liability and is not (and will not
be) subject to any loss, assessment, excise tax penalty, or
other sanction, arising on account of or in respect of any
direct or indirect failure by the Owner, at any time prior to
the IPO Closing Date, to comply with any such federal or state
benefit continuation or coverage requirement, which is capable
of being assessed or asserted before or after the IPO Closing
Date directly or indirectly against the Owner, or Apple with
respect to any of those group health plans;
(vi) the Financial Statements as of the Current Balance Sheet Date
reflect the approximate total unfunded (or uninsured) pension,
medical and other benefit liability for all Plans determined in
accordance with accounting principles and actuarial assumptions
consistently applied in the on-going administration of the
Plans; and
(vii) the Owner has not incurred liability under Section 4062 of
ERISA.
(d) MULTIEMPLOYER PLANS. Except as set forth in Section 4.27(d) of the
Disclosure Statement, neither the Owner nor any ERISA Affiliate of the Owner,
is, or at any time during the six-year period ended on the date hereof was,
obligated to contribute to a
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Multiemployer Plan. Neither the Owner nor any ERISA Affiliate of the Owner, has
made a complete or partial withdrawal from a Multiemployer Plan so as to incur
withdrawal liability as defined in Section 4201 of ERISA.
(e) CLAIMS AND LITIGATION. Except as accurately set forth in Section
4.27(e) of the Disclosure Statement, no Litigation or claims (other than routine
claims for benefits) are pending or, to the knowledge of the Owner, threatened
against, or with respect to, any of the Plans or with respect to any fiduciary,
administrator or sponsor thereof (in their capacities as such), or any
party-in-interest thereof.
(f) EXCISE TAXES, DAMAGES AND PENALTIES. No act, omission or transaction
has occurred which would result in the imposition on the Owner of (i) breach of
fiduciary duty liability damages under Section 409 of ERISA, (ii) a civil
penalty assessed pursuant to subsection (c), (i) or (l) of Section 502 of ERISA
or (iii) any excise tax under applicable provisions of the Code with respect to
any Plan.
(g) VEBA WELFARE TRUST. Any trust funding a Plan, which is intended to
be exempt from federal income taxation pursuant to Section 501(c)(9) of the
Code, satisfies the requirements of that section and has received a favorable
exemption letter from the IRS regarding that exempt status and has not, since
receipt of the most recent favorable exemption letter, been amended or operated
in a way that would adversely affect that exempt status. The value of assets of
each trust described in the Section 4.27(g) equals or exceeds the value of
benefit liabilities of such trust (or related Plan) determined in accordance
with actuarial assumptions consistently applied in the on-going administration
of such trust (or related Plan).
Section 4.28 TAXES. (a) Each of the following representations and
warranties in this Section 4.28 is qualified to the extent set forth in Section
4.28 of the Disclosure Statement.
(b) All Returns required to be filed with respect to any Tax for which
the Owner is liable have been duly and timely (taking into account applicable
extensions) filed with the appropriate Taxing Authority, all such Returns were
correct and complete in all material respects, all Taxes that have become due
from the Owner have been paid, each Tax payable by the Owner by assessment has
been timely paid in the amount assessed and adequate reserves have been
established on the books of the Owner for all Taxes for which the Owner is
liable, but the payment of which is not yet due. The Owner is not, and never has
been, liable for any Tax payable by reason of the income or property of a Person
other than the Owner (or the Owner's spouse). The Owner has timely filed true,
correct and complete declarations of estimated Tax in each jurisdiction in which
any such declaration is required to be filed by him. No Liens for Taxes exist
upon the assets of the Owner except Liens for Taxes which are not yet due. The
Owner is not, and never has been, subject to Tax in any jurisdiction outside of
the United States. No Litigation with respect to any Tax for which the Owner is
asserted to be liable is pending or, to the knowledge of the Owner, threatened
and no basis which the Owner believes to be valid exists on which any claim for
any such Tax can be asserted against the Owner. There are no requests for
rulings or determinations in respect of any Taxes pending between the Owner and
any Taxing Authority. No extension of any period during which any Tax may be
assessed or collected and for which the Owner is or may be liable has been
granted
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to any Taxing Authority. The Owner is not and has not been a party to any tax
allocation or sharing agreement. All amounts required to be withheld by the
Owner and paid to governmental agencies for income, social security,
unemployment insurance, sales, excise, use and other Taxes have been collected
or withheld and paid to the proper Taxing Authority. The Owner has made all
deposits required by law to be made with respect to employees' withholding and
other employment taxes.
(c) The Owner is not a "foreign person," as that term is referred to in
Section 1445(f)(3) of the Code.
(d) The Owner has not filed a consent pursuant to Section 341(f) of the
Code or any comparable provision of any other Tax statute nor has agreed to have
Section 341(f)(2) of the Code or any comparable provision of any other Tax
statute apply to any disposition of an asset. The Owner has not made, is not
obligated to make and is not a party to any agreement that could require him to
make any payment that is not or would not be deductible under Section 280G of
the Code. The Owner is not subject to any provision of applicable law which
eliminates or reduces the allowance for depreciation or amortization in respect
of that asset below the allowance generally available to an asset of its type.
No accounting method changes of the Owner exist or are proposed or threatened
which could give rise to an adjustment under Section 481 of the Code.
Section 4.29 GOVERNMENT CONTRACTS. Except as accurately set forth in
Section 4.29 of the Disclosure Statement, the Owner is not a party to any
governmental contract subject to price redetermination or renegotiation.
Section 4.30 ABSENCE OF CHANGES. Since the Current Balance Sheet Date,
except as accurately set forth in Section 4.30 of the Disclosure Statement, none
of the following has occurred with respect to the Owner or the Business:
(a) any circumstance, condition, event or state of facts (either singly
or in the aggregate), other than conditions generally affecting the business of
providing orthodontic care to patients, which has caused, is causing or will
cause a Material Adverse Effect on the Business;
(b) [Intentionally Left Blank];
(c) any Restricted Payment;
(d) any increase in, or any commitment or promise to increase, the rates
of Cash Compensation as of the date hereof, or the amounts or other benefits
paid or payable under any Owner ERISA Pension Plan or Other Compensation Plan,
except for ordinary and customary bonuses and salary increases for employees
(other than the Owner's or his Immediate Family Members) at the times and in the
amounts consistent with his past practice;
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(e) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, that will have a Material Adverse
Effect on Apple following the IPO Closing Date;
(f) any distribution, sale or transfer of, or any Owner Commitment to
distribute, sell or transfer, any of its assets or properties of any kind which
singly is or in the aggregate are Material to the Business, other than
distributions, sales or transfers in the ordinary course of its business and
consistent with its past practices to Persons other than the Owner and his
Immediate Family Members and Affiliates;
(g) any cancellation, or agreement to cancel, any Indebtedness,
obligation or other liability owing to it, including any Indebtedness,
obligation or other liability of the Owner or any Related Person or Affiliate
thereof, provided that the Owner may negotiate and adjust bills in the course of
good faith disputes with customers in a manner consistent with past practice, if
all those adjustments are included in the Supplemental Information provided
Apple pursuant to Section 6.08;
(h) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of the assets, property or rights
relating to the Business or requiring consent of any Person to the transfer and
assignment of any such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets relating to the Business
outside of the ordinary course of business consistent with past practices;
(j) any waiver of any of rights or claims that singly is or in the
aggregate are Material to the Business;
(k) any transaction by the Owner relating to the Business outside the
ordinary course of business or not consistent with past practices;
(l) any incurrence by the Business of any Indebtedness or any Guaranty
not constituting Indebtedness, or any Owner Commitment to incur any Indebtedness
or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities or
Indebtedness of any Person other than a Permitted Investment;
(n) except in accordance with the Business' capital expenditure budget
for the Business' current fiscal year, any capital expenditure or series of
related capital expenditures by the Owner relating to the Business in excess of
$5,000, or commitments by the Owner to make capital expenditures relating to the
Business totaling in excess of $5,000; or
(o) any cancellation or termination of a Material Agreement of the Owner
relating to the Business.
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Section 4.31 BANK RELATIONS; POWERS OF ATTORNEY. The Owner has provided
Apple with an accurate, complete written statement setting forth the following
information to the extent it relates to the Business:
(a) the name of each financial institution in which the Owner has
borrowing or investment arrangements, deposit or checking accounts or safe
deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or box
numbers and the name of each Person authorized to draw thereon or have access
thereto; and
(c) the name of each Person holding a general or special power of
attorney from the Owner and a description of the terms of each such power.
Section 4.32 RELATIONS WITH GOVERNMENTS, ETC. The Owner has not made,
offered or agreed to offer anything of value to any governmental official,
political party or candidate for government office which would cause the Owner
to be in violation of the Foreign Corrupt Practices Act of 1977 or any
Governmental Requirement to a similar effect.
Section 4.33 PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the right
of the Owner to receive shares of Apple Common Stock as a result of the
Acquisition or to acquire Apple Common Stock pursuant to any written option
granted by Apple to the Owner, the Owner either (a) does not own or otherwise
have any statutory or contractual preemptive or other right of any kind
(including any right of first offer or refusal) to acquire any shares of Apple
Common Stock or (b) hereby irrevocably waives each right of that type the Owner
does own or otherwise has.
Section 4.34 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The
Orthodontic Entity is, or will be no later than the IPO Pricing Date, a
professional corporation or association duly organized, validly existing and in
good standing under the laws of its Organization State, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement, the Owner Employment Agreement and
consummate the transactions and perform the services contemplated thereby. The
Orthodontic Entity is, or will be no later than the IPO Pricing Date, duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such qualification
necessary, which jurisdictions are listed in Section 4.34 of the Disclosure
Statement.
Section 4.35 CORPORATE RECORDS. The copies of the Charter Documents, and
all amendments thereto, of the Orthodontic Entity that have been, or will have
been by the IPO Pricing Date, delivered or made available to Apple are true,
correct and complete copies thereof, as in effect on the IPO Pricing Date. The
minute books of the Orthodontic Entity, copies of which have been, or will have
been by the IPO Pricing Date, delivered or made available to Apple, contain
accurate minutes of all meetings of, and accurate consents to all actions taken
without meetings by, the Board of Directors (and any committees thereof) and the
stockholders of the Orthodontic Entity since its formation.
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Section 4.36 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Orthodontic Entity of the Service Agreement, the Security
Agreement, the Owner Employment Agreement and the other agreements contemplated
thereby, and the consummation of the transactions and provisions of services
contemplated thereby, have been, or will have been by the IPO Pricing Date, duly
authorized by the Orthodontic Entity. The Service Agreement, the Security
Agreement, the Owner Employment Agreement and each other agreement contemplated
thereby will be as of the IPO Pricing Date duly executed and delivered by the
Orthodontic Entity and will constitute legal, valid and binding obligations of
the Orthodontic Entity enforceable against the Orthodontic Entity in accordance
with their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
Section 4.37 NO VIOLATION. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Owner
Employment Agreement or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the Charter
Documents of the Orthodontic Entity, or (b) to the actual knowledge of the
Owner, violate or conflict with any Governmental Requirement.
Section 4.38 NO BUSINESS, AGREEMENTS, ASSETS OR LIABILITIES. The
Orthodontic Entity has not commenced business since its incorporation. Other
than its Charter Documents, and as of the IPO Pricing Date, the Service
Agreement, the Security Agreement, the Owner Employment Agreement and the other
contracts and agreements assigned to the Orthodontic Entity by the Owner
pursuant to Section 6.12, the Orthodontic Entity is not a party to or subject to
any agreement, indenture or other instrument. The Orthodontic Entity does not
own any assets (tangible or intangible) other than the consideration received
upon the issuance of shares of its capital stock and the assets transferred
pursuant to Section 6.12, and the Orthodontic Entity does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted).
Section 4.39 COMPLIANCE WITH LAWS. The Orthodontic Entity has complied
with all applicable laws, regulations and licensing requirements and has filed
with the proper authorities all necessary statements and reports, except where
failure to so comply or file would not, individually or in the aggregate, have a
material adverse effect on the business, operations or financial condition of
the Orthodontic Entity.
Section 4.40 RELIANCE ON REPRESENTATIVES. The Owner is solely relying on
his own Representatives (including his own legal counsel and accountant) as to
legal, tax and related matters concerning the transaction contemplated by this
Agreement and is in no way relying on Apple or Apple's Representatives
(including Apple's legal counsel and account) as to such legal, tax and related
matters. Further, the Owner acknowledges that neither Apple nor Apple's
Representatives have made any representations regarding the tax treatment of the
transactions contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.02 ORGANIZATION; POWER. Apple is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and Apple has all requisite corporate power and authority under the laws of its
Organization State and its Charter Documents to own or lease and to operate its
properties presently and following the IPO Closing Date and to carry on its
business as now conducted and as proposed to be conducted following the IPO
Closing Date. Apple has not engaged in any operations since its organization
other than in connection with their formation and capitalization and the
transactions contemplated by this Agreement and the Other Agreements.
Section 5.03 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS. (a) The execution, delivery and performance by Apple of this
Agreement and each other Transaction Document to which it is a party, and the
effectuation of the Acquisition and the other transactions contemplated hereby
and thereby, are within its corporate power under its Charter Documents and the
applicable Governmental Requirements of its Organization State and have been
duly authorized by all proceedings, including actions permitted to be taken in
lieu of proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction Documents
to which Apple is a party, when executed and delivered to the other parties
thereto, will have been, duly executed and delivered by it and is, or when so
executed and delivered will be, its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as that
enforceability may be (i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law).
(c) The execution, delivery and performance in accordance with their
respective terms by Apple of the Transaction Documents to which it is a party
have not and will not (i) violate, breach or constitute a default under (A) the
Charter Documents of Apple, (B) any Governmental Requirement applicable to Apple
or (C) any Material Agreement of Apple, (ii) result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not constituting
Indebtedness, of Apple or afford any holder of any of that Indebtedness, or any
beneficiary of any of those Guaranties, the right to require Apple to redeem,
purchase or otherwise acquire, reacquire or repay any of that Indebtedness, or
to perform any of those Guaranties, (iii) cause or result in the imposition of,
or afford any Person the right to obtain, any Lien upon any property or assets
of Apple (or upon any revenues, income or profits of Apple therefrom) or (iv)
result in the revocation, cancellation, suspension or material modification, in
any single case or in the aggregate, of any Governmental Approval possessed by
Apple at the date hereof and necessary for the ownership or lease and the
operation of its properties or the carrying on of its business as now conducted,
including any necessary Governmental Approval under each applicable
Environmental Law and Professional Code.
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(d) Except for (i) filings of the Registration Statement under the
Securities Act and the SEC order declaring the Registration Statement effective
under the Securities Act and (ii) as may be required by the HSR Act or the
applicable state securities or blue sky laws, no Governmental Approvals are
required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by Apple for the execution,
delivery or performance by Apple of the Transaction Documents to which it is a
party, the enforcement against Apple of its obligations thereunder or the
effectuation of the Acquisition and the other transactions contemplated thereby.
Section 5.04 CHARTER DOCUMENTS. Apple has delivered to the Owner true,
complete and correct copies of the Charter Documents of Apple. No breach or
violation of any Charter Document of either Apple has occurred and is
continuing.
Section 5.05 CAPITAL STOCK OF APPLE. (a) Immediately prior to the IPO
Closing Date, (i) the authorized Capital Stock of Apple will be comprised of (A)
50,000,000 shares of Apple Common Stock and (B) 10,000,00 shares of preferred
stock, $.01 par value per share, (ii) before giving effect to the Acquisition
and the merger or other acquisition transactions contemplated by the Other
Agreements, (A) the number of shares of Apple Common Stock then issued and
outstanding will be as set forth in the Registration Statement when it becomes
effective under the Securities Act, (B) no shares of the Apple preferred stock
then will be issued or outstanding and (C) Apple will have reserved for issuance
pursuant to Other Compensation Plans or the exercise of Derivative Securities
the number of shares of Apple Common Stock set forth in the Registration
Statement when it becomes effective under the Securities Act.
(b) All shares of Apple Common Stock outstanding immediately prior to
the IPO Closing Date, and all shares of Apple Common Stock to be issued pursuant
to Section 2.04, when issued, (i) will have been duly authorized and validly
issued in accordance with the DGCL and their issuer's Charter Documents and (ii)
will be fully paid and nonassessable. None of the shares of Apple Common Stock
to be issued pursuant to Section 2.04 will, when issued, have been issued in
breach or violation of (i) any applicable statutory or contractual preemptive
rights, or any other rights of any kind (including any rights of first offer or
refusal), of any Person or (ii) the terms of any of its Derivative Securities
then outstanding.
Section 5.06 SUBSIDIARIES. Immediately prior to the IPO Closing Date,
(a) Apple will have no Subsidiaries and (b) Apple will not own, of record or
beneficially, directly or indirectly through any Person or otherwise (except
pursuant hereto or to the Other Agreements), any Capital Stock or Derivative
Securities of any Entity.
Section 5.07 LIABILITIES. Except as disclosed in the Private Placement
Memorandum, Apple has no material liabilities of any kind other than those
incurred in connection with this Agreement and the Other Agreements and the
transactions contemplated hereby and thereby, including the IPO.
Section 5.08 COMPLIANCE WITH LAWS; NO LITIGATION. Apple is in compliance
with all Governmental Requirements applicable to it, and no Litigation is
pending or, to the knowledge of Apple, threatened to which Apple is or may
become a party which (a) questions or involves
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the validity or enforceability of any obligation of Apple under any Transaction
Document, (b) seeks (or reasonably may be expected to seek) (i) to prevent or
delay consummation by Apple of the transactions contemplated by this Agreement
to be consummated by Apple, or (ii) damages from Apple in connection with any
such consummation.
Section 5.09 NO BROKERS. Except as disclosed in the Private Placement
Memorandum, Apple has not, directly or indirectly, in connection with this
Agreement or the transactions contemplated hereby (a) employed any broker,
finder or agent or (b) agreed to pay or incurred any obligation to pay any
broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 5.10 PRIVATE PLACEMENT MEMORANDUM. At the date hereof, the
Private Placement Memorandum (other than the historical financial statements,
including the notes thereto, of the Founding Companies (other than the Business)
and the historical information contained therein respecting the Business and the
Owner, to which this Section 5.10 does not apply) does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in the light
of the circumstances under which those statements are made.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From the date
hereof and until the IPO Closing Date, the Owner will (i) afford to the
Representatives of Apple reasonable access to all the key employees, sites,
properties, books and records of the Business, (ii) provide Apple with such
additional financial and operating data and other information relating to the
business and properties of the Business as Apple or any Other Founding Company
may from time to time reasonably request and (iii) cooperate with Apple and each
Other Founding Company and their respective Representatives in the preparation
of any documents or other material which may be required in connection with any
Transaction Documents or any Other Transaction Documents. The Owner will treat
all Confidential Information obtained by him in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to Apple as confidential in accordance with the provisions of
Section 11.01.
(b) The Owner will use his best efforts to secure, as soon as
practicable after the date hereof, all approvals or consents of third Persons as
may be necessary to consummate the transactions contemplated hereby.
(c) From the date hereof and until the IPO Closing Date, Apple will (i)
afford to the Representatives of Owner access to all sites, properties, books
and records of Apple, (ii) provide the Owner with such additional financial and
operating data and other information relating to the business and properties of
Apple as the Owner may from time to time reasonably request and (iii) cooperate
with the Owner and his Representatives in the preparation of any
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documents or other material which may be required in connection with any
Transaction Documents.
(d) If this Agreement is terminated pursuant to Section 12.1, Apple
promptly will return all written Confidential Information of the Owner it then
possesses to the Owner.
Section 6.03 CONDUCT OF BUSINESS PENDING CLOSING. From the date hereof
and until the IPO Closing Date, the Owner will except as and only to the extent
set forth in Section 6.03 of the Disclosure Statement:
(a) carry on his businesses in substantially the same manner as he has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain his properties and facilities relating to the Business,
including those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform all his obligations under agreements relating to or
affecting his assets, properties and other rights relating to the Business;
(d) keep in full force and effect without interruption all his present
insurance policies or other comparable insurance coverage relating to the
Business;
(e) use reasonable commercial efforts to (i) maintain and preserve his
business organization intact, (ii) retain his present employees and (iii)
maintain his relationships with suppliers, customers, patients and others having
business relations with him;
(f) comply with all applicable Governmental Requirements; and
(g) except as required or expressly permitted by this Agreement,
maintain the instruments and agreements governing his outstanding Indebtedness
and leases relating to the Business on their present terms and not enter into
new or amended Indebtedness or lease instruments or agreements relating to the
Business involving amounts over $1,000 in any case or $5,000 in the aggregate,
without the prior written consent of Apple (which consent will not be
unreasonably withheld).
Section 6.04 PROHIBITED ACTIVITIES. From the date hereof and until the
IPO Closing Date, without the prior written consent of Apple or unless as
required or expressly permitted by this Agreement, the Owner will not:
(a) [Intentionally Left Blank];
(b) [Intentionally Left Blank];
(c) make any Restricted Payment (other than as provided in Section 6.04
of the Disclosure Statement);
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(d) make any investments relating to the Business (other than Permitted
Investments) in the Capital Stock, Derivative Securities or Indebtedness of any
Person;
(e) enter into any contract or commitment or incur or agree to incur any
liability or make any capital expenditures in a single transaction or a series
of related transactions relating to the Business involving an aggregate amount
of more than $1,000 otherwise than in the ordinary course of his business and
consistent with his past practice;
(f) increase or commit or promise to increase the Cash Compensation
payable or to become payable to any employee or agent, consultant or independent
contractor of the Owner or make any discretionary bonus or management fee
payment to any such Person, except bonuses or salary increases to employees
(other than the Owner or the Owner's Immediate Family Members) at the times and
in the amounts consistent with his past practice;
(g) create, assume or permit to be created or imposed any Liens (other
than Permitted Liens) upon any of his assets or properties relating to the
Business, whether now owned or hereafter acquired, except for purchase money
Liens incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $1,000 and necessary or desirable for the conduct of the
Business;
(h) (i) adopt, establish, amend or terminate any ERISA Employee Benefit
Plan, or any Other Compensation Plan or Employee Policies and Procedures or (ii)
take any discretionary action, or omit to take any contractually required
action, if that action or omission could either (A) deplete the assets of any
ERISA Employee Benefit Plan or any Other Compensation Plan or (B) increase the
liabilities or obligations under any such plan;
(i) sell, assign, lease or otherwise transfer or dispose of any of his
owned or leased property or equipment relating to the Business otherwise than in
the ordinary course of his business and consistent with his past practice;
(j) negotiate for the acquisition of any business or the start-up of any
new business;
(k) merge, consolidate or effect a share exchange with, or agree to
merge, consolidate or effect a share exchange with any other Entity;
(l) waive any of his material rights or claims relating to the Business,
provided that he may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice, but such
adjustments will not be deemed to be included in Section 4.17 of the Disclosure
Statement unless specifically listed in the Supplemental Information;
(m) commit a material breach of or amend or terminate any Material
Agreement of the Owner or any of his Governmental Approvals; or
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(n) enter into any other transaction relating to the Business (i)
outside the ordinary course of his business and consistent with his past
practice or (ii) prohibited hereby.
Section 6.05 NO SHOP. (a) The Owner agrees that, from the date hereof
and until the first to occur of the IPO Closing Date or the termination of this
Agreement in accordance with Article XII, the Owner shall not, and the Owner
will direct and use his best efforts to cause each of his respective
Representatives not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Business (any such proposal or offer being an
"Acquisition Proposal") or engage in any activities, discussions or negotiations
concerning, or provide any Confidential Information respecting, the Business,
any Other Founding Company or Apple to, or have any discussions with, any Person
relating to an Acquisition Proposal or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Owner will: (i)
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
to any of the foregoing, and each will take the steps necessary to inform the
Persons referred to in the first sentence of this Section 6.05(a) of the
obligations undertaken in this Section 6.05(a); and (ii) notify Apple
immediately if any such inquiries or proposals are received by, any such
information is requested from or any such discussions or negotiations are sought
to be initiated or continued with the Owner.
(b) [Intentionally Left Blank].
Section 6.06 FORMATION OF ORTHODONTIC ENTITY. The Owner shall duly form
and organize and incorporate the Orthodontic Entity in its Organization State,
and the Articles of Association and Bylaws of the Orthodontic Entity shall be in
form and substance reasonably satisfactory to Apple. The Owner shall not permit
the Orthodontic Entity to commence business until the IPO Pricing Date.
Section 6.07 NOTIFICATION OF CERTAIN MATTERS. The Owner shall give
prompt notice to Apple of (a) the existence or occurrence of each condition or
state of facts which will or reasonably could be expected to cause any
representation or warranty of the Owner contained herein to be untrue or
incorrect in any material respect at or prior to the Closing or on the IPO
Closing Date and (b) any material failure of the Owner to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by the
Owner hereunder, provided that no such notice shall be required until Apple
shall give notice to the Owner of the date scheduled for the Closing with
respect to the occurrence in the ordinary course of business and consistent with
past practice of the Owner of any condition or state of facts which would cause
any Sections of the Disclosure Statement to be incorrect. Apple shall give
prompt notice to the Owner of (a) the existence or occurrence of each condition
or state of facts which will or reasonably could be expected to cause any
representation or warranty of Apple contained herein to be untrue or inaccurate
at or prior to the Closing or on the IPO Closing Date and (b) any material
failure of Apple to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 6.07 shall not be deemed to (a) modify the
representations or warranties herein of the party
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delivering that notice, or any other party, which modification may be made only
pursuant to Section 6.08, (b) modify the conditions set forth in Article VII or
(c) limit or otherwise affect the remedies available hereunder to the party
receiving that notice.
Section 6.08 SUPPLEMENTAL INFORMATION. The Owner agrees that, with
respect to the representations and warranties of the Owner contained in this
Agreement, the Owner will have the continuing obligation (except to the extent
otherwise provided in Section 6.07) until the Closing to provide Apple promptly
with such additional supplemental Information (collectively, the "Supplemental
Information"), in the form of (a) amendments to then existing Sections of the
Disclosure Statement or (b) additional Sections of the Disclosure Statement, as
would be necessary, in the light of the circumstances, conditions, events and
states of facts then known to the Owner, to make each of those representations
and warranties true and correct as of the Closing and on the IPO Closing Date.
For purposes only of determining whether the conditions to the obligations of
Apple which are specified in Sections 7.04(a)(ii)(A) and 7.04(b)(ii) have been
satisfied, and not for any purpose under Article IX, the Disclosure Statement as
of the Closing and on the IPO Closing Date shall be deemed to be the Disclosure
Statement as of the date hereof as amended or supplemented by the Supplemental
Information provided to Apple prior to the Closing pursuant to this Section
6.08; provided, however, that if the Supplemental Information so provided
discloses the existence of circumstances, conditions, events or states of facts
which, in any combination thereof, (a) have had a Material Adverse Effect on the
Owner which was not reflected in the determination of the Transaction Value or,
in the sole judgment of Apple (which shall be conclusive for purposes of this
Section 6.08 and Article XII, but not for any purpose of Article IX), (b) are
having or will have a Material Adverse Effect on the Owner, as the case may be,
Apple will be entitled either (i) to terminate this Agreement pursuant to
Section 12.01(d) or (ii) to treat as Apple Indemnified Losses for all purposes
of Article IX (which treatment will not prejudice the right of the Owner under
Article IX to contest Damage Claims made by Apple in respect of those Apple
Indemnified Losses) all Damages to the Owner which are attributable to the
circumstances, conditions, events and states of facts first disclosed herein
after the date hereof in the Supplemental Information. Apple will provide the
Owner with copies of the Registration Statement, including all pre-effective
amendments thereto, promptly after the filing thereof with the SEC under the
Securities Act.
Section 6.09 COOPERATION IN CONNECTION WITH THE IPO. The Owner will (a)
provide Apple and the Underwriter with all the Information concerning the Owner
which is reasonably requested by Apple and the Underwriter from time to time in
connection with effecting the IPO and (b) cooperate with Apple and the
Underwriter and their respective Representatives in the preparation and
amendment of the Registration Statement (including the Financial Statements) and
in responding to the comments of the SEC staff, if any, with respect thereto.
The Owner agrees promptly to (a) advise Apple if, at any time during the period
in which a prospectus relating to the IPO is required to be delivered under the
Securities Act, any information contained in the then current Registration
Statement prospectus concerning the Owner becomes incorrect or incomplete in any
material respect and (b) provide Apple with the information needed to correct or
complete that information.
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Section 6.10 ADDITIONAL FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Owner will furnish to Apple:
(a) as soon as available and in any event within 30 days after the end
of each of the Business' fiscal quarters which ends prior to the IPO Pricing
Date, an unaudited consolidated balance sheet of the Business as of the end of
that fiscal quarter and the related consolidated statements of income or
operations, cash flows and stockholders' or other owners' equity for that fiscal
quarter and for the period of the Business' fiscal year ended with that quarter,
in each case (i) setting forth in comparative form the figures for the
corresponding portion of the Business' previous fiscal year and (ii) prepared in
accordance with GAAP applied on basis consistent (A) throughout the periods
indicated (excepting footnotes) and (B) with the basis on which the Initial
Financial Statements including the Current Balance Sheet were prepared;
(b) if requested by Apple in connection with any amendment of the
Registration Statement and promptly following any such request, such summary
consolidated operating or other financial information of the Business as of the
end of either the first or second fiscal month in any of the Business' fiscal
quarters as Apple may request; and
(c) to the extent not provided at the time of execution and delivery of
this Agreement, on or prior to March 1, 1997 the information concerning the
Owner and the Business contemplated by the Agreement to be set forth in the
Disclosure Statement.
Section 6.11 TERMINATION OR TRANSFER OF PLANS. If requested by Apple,
the Owner will if permitted by all applicable Governmental Requirements to do
so, terminate each Plan identified in Section 4.26(c) or (d) of the Disclosure
Statement as a "Plan To Be Terminated" (or in the case of Owner ERISA Benefit
Plans, or Owner ERISA Pension Plans, remove such Plans from the Business and
transfer sponsorship of such Plans to the Orthodontic Entity) prior to the IPO
Closing Date.
Section 6.12 DISPOSITION OF UNWANTED ASSETS. At or prior to the Closing,
the Owner will make all arrangements and take all such actions as are necessary
and satisfactory to Apple to convey to the Orthodontic Entity, prior to the IPO
Closing Date, each asset of the Owner relating to the Business that by law
cannot be acquired by Apple because it relates to the practice of dentistry,
which assets are listed in Section 2.1 of the Disclosure Statement.
Section 6.13 HSR ACT MATTERS. If Apple shall determine that filings
pursuant to and under the HSR Act are necessary or appropriate in connection
with the effectuation of the Acquisition or the consummation of the acquisitions
contemplated by the Other Agreements, and advises the Owner in writing of that
determination, the Owner promptly will compile and file under the HSR Act such
information respecting him and the Business as the HSR Act requires of an Entity
to be acquired, and the expiration or termination of the applicable waiting
period and any extension thereof under the HSR Act shall be deemed a condition
precedent set forth in Section 7.02(b).
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.02 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. (a) The
obligation of each party hereto to take the actions contemplated to be taken by
that party at the Closing is subject to the satisfaction of each of the
following conditions on or before the date of the Closing:
(i) NO LITIGATION. Except as set forth in Section 7.02 of the
Disclosure Statement, no Litigation shall be pending on the date
of the Closing to restrain, prohibit or otherwise interfere
with, or to obtain material damages or other relief from Apple
in connection with, the consummation of the Acquisition or the
IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals required to
be obtained by any of the Owner and Apple in connection with the
consummation of the Acquisition and the IPO shall have been
obtained; and
(iii) THE REGISTRATION STATEMENT. (A) The Registration Statement, as
amended to cover the offering, issuance and sale by Apple of
such number of shares of Apple Common Stock at the IPO Price
(which need not be set forth in the Registration Statement when
it becomes effective under the Securities Act) as shall yield
aggregate cash proceeds to Apple from that sale (net of the
Underwriter's discount or commissions) in at least the amount
(the "Minimum Cash Amount") that is sufficient, when added to
the funds, if any, available from other sources (if any, and as
set forth in the Registration Statement when it becomes
effective under the Securities Act) (the "Other Financing
Sources") to enable Apple to pay or otherwise deliver on the IPO
Closing Date (1) the total cash portion of the Acquisition
Consideration then to be delivered pursuant to Section 2.04, (2)
the total cash portion of the consideration then to be delivered
pursuant to the Other Agreements as a result of the consummation
of the Acquisition or other acquisition transactions
contemplated thereby and (3) the total amount of Indebtedness of
the Founding Companies and Apple which the Registration
Statement discloses at the time it becomes effective under the
Securities Act will be repaid on the IPO Closing Date with
proceeds received by Apple from the IPO and the Other Financing
Sources, shall have been declared effective under the Securities
Act by the SEC; (B)
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no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC, and the SEC shall
not have initiated or threatened to initiate Litigation for that
purpose; and (C) the Underwriter shall have agreed in writing
(the "Underwriting Agreement," which term includes the related
pricing agreement, if any) to purchase from Apple on a firm
commitment basis for resale to the public initially at the IPO
Price, subject to the conditions set forth in the Underwriting
Agreement, such number of shares of Apple Common Stock covered
by the Registration Statement as, when multiplied by the price
per share of Apple Common Stock to be paid by the Underwriter to
Apple pursuant to the Underwriting Agreement, shall equal at
least the Minimum Cash Amount.
(b) The obligation of each party hereto with respect to the actions to
be taken on the IPO Closing Date is subject to the satisfaction on that date of
each of the following conditions:
(i) NO LITIGATION. Except as set forth in Section 7.02 of the
Disclosure Statement, no Litigation shall be pending on the IPO
Closing Date to restrain, prohibit or otherwise interfere with,
or to obtain material damages or other relief from Apple in
connection with, the consummation of the Acquisition or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals required to
be obtained by the Owner and Apple in connection with the
consummation of the Acquisition and the IPO shall have been
obtained;
(iii) RECEIPT OF CERTAIN CERTIFICATES. The Owner or his Representative
shall receive the certificates that such party is entitled to
receive on the IPO Closing Date; and
(iv) CLOSING OF THE IPO. Apple shall have issued and sold shares of
Apple Common Stock to the Underwriter in accordance with the
Underwriting Agreement for initial resale at the IPO Price and
received payment therefor in an amount at least equal to the
amount by which (A) the Minimum Cash Amount exceeds (B) the
aggregate amount of funds actually received on the IPO Closing
Date, if any, from any one or more of the Other Financing
Sources.
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Section 7.03 CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The obligations
of the Owner with respect to actions to be taken by him at or before the Closing
and the actions to be taken on the IPO Closing Date are subject to the
satisfaction, or the written waiver by the Owner pursuant to Section 11.05 on or
before the date of the Closing of, in addition to the conditions specified in
Section 7.02(a) or 7.02(b), as applicable, (i) all the conditions set forth in
Section 7.01(b), if any, and (ii) all the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of Apple in Article V shall be true and correct as of the Closing as
though made at that time;
(b) DELIVERY OF DOCUMENTS. Apple shall have delivered to the Owner:
(i) an Apple officer's certificate respecting the representations
and warranties of Apple in Article V and compliance with the
covenants of Apple in Article VI and in the form thereof
attached as an exhibit to the Closing Memorandum;
(ii) opinions dated the IPO Closing Date and addressed to the Owner
from Counsel for Apple substantially in the forms thereof
attached as exhibits to the Closing Memorandum;
(iii) a certificate of the secretary or any assistant secretary of
Apple in the form thereof attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (A) the
Charter Documents of Apple (certified by the Secretary of State
of the State of Delaware in the case of the certificates of
incorporation included therein); (B) the resolutions of the
board of directors of Apple respecting the Transaction Documents
and the transactions contemplated thereby; (C) a certificate
respecting the incumbency and true signatures of the Apple
officers who execute the Transaction Documents on behalf of
Apple; (D) a specimen certificate evidencing shares of Apple
Common Stock; (E) the prospectus included in the Registration
Statement when it became effective; and (F) a facsimile copy of
the Underwriting Agreement as executed and delivered by Apple
and the Underwriter;
(iv) the Registration Rights Agreement duly executed and delivered by
Apple; and
(v) a certificate, dated as of a Current Date, duly issued by the
Secretary of State of the State of Delaware, showing Apple to be
in good standing and authorized to do business in that State.
Section 7.04 CONDITIONS TO THE OBLIGATIONS OF APPLE. (a) The obligations
of Apple with respect to actions to be taken by them at or before the Closing
are subject to the satisfaction
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on or before the date of the Closing of, in addition to the conditions specified
in Section 7.02 (a), (i) all the conditions set forth in Section 7.01(c), if
any, and (ii) all the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations and
warranties of the Owner in Articles III and IV shall be true and correct as of
the Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. The Owner shall have delivered to Apple:
(1) a certificate signed by the Owner respecting the representations
and warranties of the Owner and in Articles III and IV and
compliance with the covenants of the Owner in Article VI and in
the form thereof attached as an exhibit to the Closing
Memorandum;
(2) opinions dated the IPO Closing Date and addressed to Apple and
Counsel for Apple from Counsel for the Owner, if any,
substantially in the form thereof attached as exhibits to the
Closing Memorandum;
(3) [Intentionally Left Blank];
(4) [Intentionally Left Blank];
(5) from the Owner, an executed certificate to the effect that no
withholding is required under Section 1445 of the Code, in the
form of Exhibit 7.04(a)(ii)(B)(5), with the blanks appropriately
filled;
(6) [Intentionally Left Blank]; and
(7) from the Owner, a bill of sale and deeds, assignments and any
other necessary instruments, satisfactory in form and content
and approved prior to the Closing by Apple, conveying, free and
clear of any Liens, all the Acquired Assets to Apple.
(C) DUE DILIGENCE. Apple's due diligence investigation of the Owner and
the Business shall have been completed to the satisfaction of Apple in its sole
discretion.
(b) The obligations of Apple with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of (i) all the
conditions set forth in Section 7.01(d), if any, and (ii) the condition that all
the representations and warranties of the Owner in Articles III and IV shall be
true and correct as of the IPO Closing Date as though made on that date.
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ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.02 DISCLOSURE. If, subsequent to the IPO Pricing Date and
prior to the 25th day after the date of the Final Prospectus, the Owner becomes
aware of any fact or circumstance which would change (or, if after the IPO
Closing Date, would have changed) a representation or warranty of the Owner in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the Owner will promptly give notice of that fact or
circumstance to Apple.
Section 8.03 PREPARATION AND FILING OF TAX RETURNS. Each party hereto
will, and will cause its Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. This cooperation and information shall include
providing copies of all relevant portions of the relevant Returns, together with
such accompanying schedules and work papers, documents relating to rulings or
other determinations by Taxing Authorities and records concerning the ownership
and Tax bases of property as are relevant which a party possesses. Each party
will make its employees, if any, reasonably available on a mutually convenient
basis at its cost to provide an explanation of any documents or information so
provided. Subject to the preceding sentence, each party required by law to file
Returns shall bear all costs attributable to the preparation and filing of those
Returns; provided that if Apple is required to file a Return covering a period
described in Code Section 1362(e)(1)(A) (an S short year), such costs shall be
reimbursed by the Owners.
Section 8.04 DIRECTORS. Apple will use its best efforts to cause each of
the persons, if any, who are named in the Final Prospectus as persons who will
become members of the board of directors of Apple following the IPO Closing Date
to be appointed to that board when that prospectus so provides.
Section 8.05 [INTENTIONALLY LEFT BLANK].
Section 8.06 ACCESS. The Owner shall, at reasonable times during normal
business hours and on reasonable notice, permit apple and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and records of the Orthodontic Entity, and permit Apple and its
authorized representatives to inspect and, at Apple's sole cost and expense,
make copies of all documents, records (other than patient medical records) and
information with respect to the affairs of the Orthodontic Entity as Apple and
its representatives may request.
Section 8.07 LICENSES AND PERMITS. The Owner shall use his best efforts
to obtain all licenses, permits, approvals or other authorizations required
under any law, statute, rule, regulation or ordinance, or otherwise necessary or
desirable to provide the services of the Orthodontic Entity, the stockholders of
the Orthodontic Entity and the Orthodontic Entity Professional Employees (as
defined in the Service Agreement), the Orthodontic Entity
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Professional Employment Agreements (as defined in the Service Agreement), and to
conduct the intended business of the Orthodontic Entity.
Section 8.08 ORTHODONTIST EMPLOYMENT AGREEMENT. The Owners shall use his
best efforts to cause, at or immediately prior to Closing, each orthodontist (i)
to terminate his or her employment agreement, if any, with the Business by
mutual consent without any liability therefor on the part of the Owner and (ii)
to enter into an Orthodontic Entity Professional Employment Agreement with the
Orthodontic Entity.
ARTICLE IX
INDEMNIFICATION
Section 9.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the
provisions of this Agreement will survive the Closing and the IPO Closing Date
indefinitely notwithstanding any investigation at any time made by or on behalf
of any party hereto or the provision of any Supplemental Information pursuant to
Section 6.08, provided that the representations and warranties set forth in
Articles IV, V and VI and in any certificate delivered in connection herewith
with respect to any of those representations and warranties will terminate and
expire on December 31, 1999, except as follows: (a) the representations and
warranties of the Owner which relate expressly or by necessary implication to
Taxes, ERISA or other employment or labor matters or the Governmental
Requirements referred to in clause (iii) of Section 9.03(a) will survive until
ninety (90) days after the expiration of the applicable statutes of limitations
(including all periods of extension and tolling); and (b) the representations
and warranties of the Owner which relate expressly or by necessary implication
to the environment or Environmental Laws will survive for a period of three
years from the IPO Closing Date. After a representation and warranty has
terminated and expired, no indemnification will or may be sought pursuant to
this Article IX on the basis of that representation and warranty by any Person
who would have been entitled pursuant to this Article IX to indemnification on
the basis of that representation and warranty prior to its termination and
expiration, provided that, in the case of each representation and warranty that
will terminate and expire as provided in this Section 9.02, no claim presented
in writing for indemnification pursuant to this Article IX on the basis of that
representation and warranty prior to its termination and expiration will be
affected in any way by that termination and expiration.
Section 9.03 INDEMNIFICATION OF APPLE INDEMNIFIED PARTIES. (a) Subject
to the applicable provisions of Sections 9.02 and 9.07, the Owner covenants and
agrees that he will indemnify each Apple Indemnified Party against, and hold
each Apple Indemnified Party harmless from and in respect of, all Damage Claims
that arise from, are based on or relate or otherwise are attributable to (i) any
breach of the representations and warranties of the Owner set forth herein or in
certificates delivered in connection herewith, (ii) any nonfulfillment of any
covenant or agreement on the part of the Owner under this Agreement, (iii) all
Taxes of the Owner that arise or result from the consummation of the
transactions contemplated by this Agreement or any agreement ancillary hereto
(including, without limitation, sales, use and other transfer Taxes and income
Taxes), (iv) any liability under the Securities Act, the Exchange Act
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or other applicable Governmental Requirement which arises out of or is based on
(A) any untrue statement or alleged untrue statement of a material fact relating
to the Owner or the Business which is (1) provided to Apple or its counsel by
the Owner and (2) contained in the Private Placement Memorandum, any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (B)
any omission or alleged omission to state therein a material fact relating to
the Owner or the Business, required to be stated therein or necessary to make
the statements therein not misleading, and not provided to Apple or its counsel
by the Owner, (v) the litigation described in Section 4.12 of the Disclosure
Statement, or (vi) any debts, liabilities or obligations of the Owner, direct or
indirect, fixed, contingent or otherwise, that are not expressly assumed by
Apple in this Agreement (each such Damage Claim being an "Apple Indemnified
Loss"); provided, however, that the Owner shall not be obligated to indemnify
any Apple Indemnified Party against any Apple Indemnified Loss to the extent
that such untrue statement (or alleged untrue statement) was made in, or such
omission (or alleged omission) occurred in, any preliminary prospectus and the
Owner timely provided, in writing, corrected or the necessary additional
information to Apple and its counsel for inclusion in the Final Prospectus.
(b) [Intentionally Left Blank].
Section 9.04 INDEMNIFICATION OF OWNER INDEMNIFIED PARTIES. Apple
covenants and agrees that it will indemnify each Owner Indemnified Party
against, and hold each Owner Indemnified Party harmless from and in respect of,
all Damage Claims (that arise from, are based on or relate or otherwise are
attributable to (i) any breach by Apple of their representations and warranties
set forth herein or in their certificates delivered to the Owner in connection
herewith, (ii) any nonfulfillment of any covenant or agreement on the part of
Apple under this Agreement, or (iii) any liability under the Securities Act, the
Exchange Act or other applicable Governmental Requirement which arises out of or
is based on (A) any untrue statement or alleged untrue statement of a material
fact relating to Apple or any of the Other Founding Companies contained in the
Private Placement Memorandum, any preliminary prospectus relating to the IPO,
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (B) any omission or alleged omission
to state therein a material fact relating to Apple, or any of the Other Founding
Companies, or any of them, required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made (each such Damage Claim being an "Owner Indemnified Loss").
Section 9.05 CONDITIONS OF INDEMNIFICATION. (a) All claims for
indemnification under this Agreement shall be asserted and resolved as follows
in this Section 9.05.
(b) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim
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to the extent feasible (which estimate shall not be conclusive of the final
amount of such claim) and the basis for the Indemnified Party's request for
indemnification under this Agreement. Except as set forth in Section 9.02, the
failure to promptly deliver a Claim Notice shall not relieve the Indemnifying
Party of its obligations to the Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of that claim. Within 15 days after receipt of any
Claim Notice (the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Article IX with respect to that
Third Party Claim and (ii) if the Indemnifying Party does not dispute its
potential liability to the Indemnified Party with respect to that Third Party
Claim, whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against that Third Party
Claim.
(c) If the Indemnifying Party does not dispute its potential liability
to the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.05(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any Affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.05(c) and will bear its own
costs and expenses with respect to that participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and, on its written
notification of that employment, the Indemnifying Party shall not have the right
to assume or continue the defense of such action on behalf of the Indemnified
Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Article IX,
(B) elects not to defend the Indemnified Party pursuant to Section 9.05(c) or
(C) fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.05(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 9.05(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the
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right to defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article IX
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9.05 or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9.05(d), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
(e) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an Indemnifying Party pursuant to
this Article IX relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 9.05(e) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
Section 9.06 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
Section 9.07 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding the
provisions of Section 9.03(a), the Owner shall not be required to indemnify or
hold harmless any of the Apple Indemnified Parties on account of any Apple
Indemnified Loss under Section 9.03(a) unless the
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liability of the Owner in respect of that Apple Indemnified Loss, when
aggregated with the liability of the Owner in respect of all Apple Indemnified
Losses under Section 9.03(a), exceeds, and only to the extent the aggregate
amount of all those Apple Indemnified Losses does exceed, the Threshold Amount.
In no event shall the aggregate liability of the Owner under this Agreement,
including Section 9.03(a), exceed the Transaction Value. For purposes of
determining the amount of Apple Indemnified Losses, no effect will be given to
any resulting Tax benefit to any Apple Indemnified Party.
(b) Notwithstanding the provisions of Section 9.04, Apple shall not be
required to indemnify or hold harmless any of the Owner Indemnified Parties on
account of any Owner Indemnified Loss unless the liability of Apple in respect
of that Owner Indemnified Loss, when aggregated with the liability of Apple in
respect of all Owner Indemnified Losses, exceeds, and only to the extent the
aggregate amount of all those Owner Indemnified Losses does exceed, the
Threshold Amount. In no event shall Apple be liable under this Agreement,
including Section 9.04, for any amount in excess of the Transaction Value. For
purposes of determining the amount of Owner Indemnified Losses, no effect will
be given to any resulting Tax benefit to any Owner Indemnified Party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.15 TREATMENT OF CONFIDENTIAL INFORMATION. (a) The Owner
acknowledges that it has or may have had in the past, currently has and in the
future may have access to Confidential Information of the Other Founding
Companies and their Subsidiaries and Apple and its Subsidiaries. The Owner
agrees that it will keep confidential all such Confidential Information
furnished to it and, except with the specific prior written consent of Apple
will not disclose such Confidential Information to any Person except (a)
Representatives of Apple, (b) its own Representatives, provided that these
Representatives (other than counsel) agree to the confidentiality provisions of
this Section 11.15; and provided, further, that Confidential Information shall
not include (i) such information which becomes known to the public generally
through no fault of the Owner, (ii) information required to be disclosed by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Owner shall,
if possible, give prior written notice thereof to Apple and provide Apple with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by the Owner of the provisions of this Section 11.15 with
respect to any Confidential Information, Apple shall be entitled to an
injunction restraining the Owner from disclosing, in whole or in part, that
Confidential Information. Nothing herein shall be construed as prohibiting Apple
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
(b) Because of the difficulty of measuring economic losses as a result
of the breach of the foregoing covenants in Section 11.15(a), and because of the
immediate and irreparable
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damage that would be caused to Apple for which it would have no other adequate
remedy, the Owner agrees that Apple may enforce the provisions of Section
11.01(a) by injunctions and restraining orders against each of them who breaches
any of those provisions.
(c) The obligations of Apple set forth in Section 6.02(d) are
incorporated in this Section 11.01 by this reference.
(d) The obligations of the parties under this Section 11.15 shall
survive the termination of this Agreement.
Section 11.16 BULK SALES. Without implication that such laws apply to
the transaction contemplated hereby, the Owner and Apple shall not comply with
the provisions of the Uniform Commercial Code and other applicable laws of any
states relating to bulk sales or transfers.
48
EXHIBIT 2.5
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
ORTHODONTICS EXCLUSIVELY, LTD.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME....................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Orthodontics Exclusively, Ltd., an Arizona professional
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder"). This Agreement consists
of the Agreement and Plan of Reorganization set forth below and a separate
document of Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Arizona Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Orthodontics Exclusively, Ltd., an Arizona
professional corporation.
"Company Common Stock" means the common stock, par value $10.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Jeffrey M.
Schneck.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Arizona professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Paul E. Bonham.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Arizona.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Chapter 13 of the BCA, it being intended and agreed that any holder of those
shares shall have in consideration for the cancellation thereof only the rights,
if any, afforded to that holder under Chapter 13 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by
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Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
6
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Arizona, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Arizona)
in which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
30,000 shares of Company Common Stock, of which 100 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Arizona; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Arizona), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant
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to Section 2.05 and (iii) satisfy the document delivery requirements to which
the obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Arizona as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Paul E. Bonham.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
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GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This
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Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Required Stockholders, the Company and Apple;
provided, however, that no such amendment, modification, supplement or waiver
will be effective unless it is signed by each Stockholder affected thereby to
the extent that it (a) changes the several nature of that Stockholder's
representations and warranties (to the extent they are not already joint and
several as provided in Sections 4.01 and 11.03), (b) reduces the amount, or
changes the components, of the Merger Consideration that Stockholder is entitled
to receive pursuant to Section 2.04, as adjusted pursuant to Section 2.05(f),
(c) waives the consummation of the IPO as a condition to consummation of the
Merger or (d) amends or waives this sentence. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at
15
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the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their addresses
set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Orthodontics Exclusively, Ltd.
6200 S. McClintock, Suite 4
Tempe, Arizona 85283
Attn: Dr. Paul E. Bonham
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jeffrey M. Schneck
1440 E. Missouri Ave.
Phoenix, Arizona
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
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Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to
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terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Arizona, but before the IPO has been consummated, Apple will take
all actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Arizona in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
ORTHODONTICS EXCLUSIVELY, LTD.
By: /s/ Paul E. Bonham, D.D.S., M.S.
Printed Name: Paul E. Bonham, D.D.S.,
M.S.
Title: President
STOCKHOLDERS:
/s/ Paul E. Bonham, D.D.S., M.S.
Printed Name: Paul E. Bonham, D.D.S., M.S.
19
EXHIBIT 2.6
CONTRIBUTION AGREEMENT
DATED AS OF February 26, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
DUNCAN Y. BROWN PROFESSIONAL CORPORATION
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS................................................... 1
Section 1.01 CERTAIN DEFINED TERMS........................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED....................................................... 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS............. 5
Section 2.02 THE CLOSING..................................... 6
Section 2.04 ACQUISITION PRICE............................... 6
Section 2.05 ALLOCATION REPORTING............................ 6
Section 2.06 FRACTIONAL SHARES............................... 6
Section 2.07 ACCOUNTS RECEIVABLE............................. 6
Section 2.08 MAIL RECEIVED AFTER CLOSING..................... 7
Section 2.09 OBLIGATIONS ASSUMED............................. 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED......... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER.................. 8
Section 3.01 BY EACH OWNER................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.................................. 8
Section 4.01 BY THE SELLER AND EACH OWNER.................... 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ...................... 10
Section 5.01 BY APPLE........................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE...................... 10
Section 6.01 OF EACH PARTY................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS.............. 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE........................ 11
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Section 8.01 OF EACH PARTY OTHER THAN THE SELLER............. 11
ARTICLE IX INDEMNIFICATION.................................................. 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.......... 12
ARTICLE X LIMITATIONS ON COMPETITION.................................... 12
Section 10.01 PROHIBITED ACTIVITIES........................... 12
Section 10.02 DAMAGES......................................... 13
Section 10.03 REASONABLE RESTRAINT............................ 13
Section 10.04 SEVERABILITY; REFORMATION....................... 13
Section 10.05 [INTENTIONALLY DELETED]......................... 13
Section 10.06 MATERIALITY..................................... 13
ARTICLE XI GENERAL PROVISIONS............................................... 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION........... 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK.. 14
Section 11.03 BROKERS AND AGENTS.............................. 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES........ 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS............ 15
Section 11.06 COUNTERPARTS.................................... 16
Section 11.07 EXPENSES........................................ 16
Section 11.08 NOTICES......................................... 16
Section 11.09 GOVERNING LAW................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES................. 17
Section 11.11 TIME............................................ 18
Section 11.12 REFORMATION AND SEVERABILITY.................... 18
Section 11.13 REMEDIES CUMULATIVE............................. 18
Section 11.14 RESPECTING THE IPO.............................. 18
ARTICLE XII TERMINATION..................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION............. 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 26, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("AOI"), 718842 Alberta Inc., an Alberta corporation ("Apple") (AOI,
Apple and their affiliates are referred to hereinafter as the "Apple Group"),
Duncan Y. Brown Professional Corporation (the "Seller"), and the persons listed
on the signature pages hereof under the caption "Owners" (collectively, the
"Owners," and each of those persons, individually, an "Owner"). This Agreement
consists of the Contribution Agreement set forth below and a separate document
of Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple,
on the terms and subject to the conditions set forth herein,
substantially all of the assets used by Seller in the business (the
"Business") of providing orthodontic services to patients (the
"Acquisition"); and
(b) AOI shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 85 of the
Income Tax Act (Canada).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms have the meanings assigned to them below in this Section
1.01. Capitalized terms used in this Agreement and not defined below in this
Section 1.01 have the respective meanings assigned to them in the Preliminary
Statement or Section 1.02 found in the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
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"Acquisition" has the meaning specified in the Preliminary
Statement of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Addenda, Annexes
and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"AOI" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of
the businesses of providing orthodontic services to patients (i) which
was called on by any Owner, Seller, Apple or the Subsidiaries of the
Seller or Apple in connection with the possible acquisition by any of
them of that Entity or (ii) of which any of them has made an acquisition
analysis.
"Business" has the meaning specified in the Preliminary Statement
of this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Code Hunter
Wittmann, Barristers & Solicitors.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to
and made a part of this Agreement in which (a) exceptions are taken to
certain of the representations and warranties made by the Seller and the
Owners herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Seller.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01(f).
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this
Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity
and each Owner.
"Purchase and Sales Contracts" has the meaning specified in
Section 2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned
by that Person, as set forth in Section 3.02 of the Disclosure
Statement, and (ii) the denominator of which is the total number of
shares of outstanding Seller Common Stock owned by all Owners, as set
forth in Section 3.02 of the Disclosure Statement, or (b) if Seller is a
partnership, the fraction expressed as a percentage (i) the numerator of
which is the number of partnership interests owned by that person, as
set forth in Section 3.02 of the Disclosure Statement, and (ii) the
denominator
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of which is the total number of outstanding partnership interests owned
by all Owners, as set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" has the meaning specified in the preamble of this
Agreement.
"Seller Common Stock" means, if Seller is a corporation, the
common stock of the Seller.
"Service Agreement" means the Service Agreement to be entered
into as of the IPO Closing Date among Apple, the Owners and the
Orthodontic Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's
revenues (less bad debts) for the 12-month period ended December 31,
1996, multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the following assets, property and rights used by the Seller in
the Business (collectively, the "Acquired Assets"):
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(a) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(b) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(c) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases").
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any assets listed in Section 2.01 of the Disclosure Statement
under the heading "Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be
at 8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid
by Apple at the Closing for the Acquired Assets (the "Acquisition
Consideration") is $369,717 (U.S.) and the number of whole shares of the common
stock of Apple convertible on a one for one basis to common shares of AOI,
subject to appropriate anti-dilution provisions that equals $1,478,867 divided
by the IPO Price. Each share of such common stock shall have the right attached
to it to be converted into one common share of AOI of the type issued pursuant
to the IPO, subject to appropriate anti-dilution protections. The aforementioned
common stock of Apple will be issued so as to permit the Seller a deferral for
Canadian income tax purposes.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 on a fair market value basis.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of Apple Common Stock will be issued, and
any Owner entitled hereunder to receive a fractional share of Apple Common Stock
but for this Section 2.06 will have the cash portion of the Acquisition
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 INTENTIONALLY DELETED
Section 2.08 INTENTIONALLY DELETED
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Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration
for the Acquired Assets, and subject to Section 2.10, Apple shall assume
Seller's obligations that accrue after the IPO Closing Date under the Contracts
and Purchase and Sale Contracts listed on Section 2.01 of the Disclosure
Statement and under the Leases and such other obligations listed in Section 2.09
of the Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than
as specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction),liability for disabled individuals,
workers' compensation liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
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(a) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct as applied
solely to himself, and his agreements set forth in that Article hereby
are agreed to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the Province of Alberta, Canada, and each of the Seller
and the Seller Subsidiaries (i) is either (A) a corporation duly
organized, validly existing and in good standing, or (B) a partnership
duly formed and validly existing, under the laws of that Province, (ii)
has all requisite corporate or partnership power and authority under
those laws and its Charter Documents to own or lease and to operate its
properties and to carry on its business as now conducted and (iii) is
duly qualified and in good standing as a foreign corporation or
partnership in all jurisdictions in which it owns or leases property or
in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) Intentionally Deleted.
(c) Intentionally Deleted.
(d) Intentionally Deleted.
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his
account, for investment purposes only and with no current intention or
plan to distribute, sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) each Owner is not a party to any
agreement or other arrangement for the disposition of any shares of
Apple Common Stock other than this Agreement and the Registration Rights
Agreement; (iii) each Owner is either an "accredited investor" as
defined in Securities Act Rule 501(a) or, if such Owner is not such an
investor, Section 4.01(e) of the Disclosure Statement sets forth the
name and
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address of his Purchaser Representative; (iv) such Owner (A) is able to
bear the economic risk of an investment in the Apple Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, and (C) either (1) has such knowledge and
experience in financial and business matters that such Owner is capable
of evaluating the merits and risks of the proposed investment in the
Apple Common Stock, or (2) such Owner's Purchaser Representative has had
an adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Apple,
the plans for the operations of the business of Apple, the business,
operations and financial condition of the Other Founding Companies and
any plans of Apple for additional acquisitions or such Owner's Purchaser
Representative has asked all questions of the nature described in the
immediately preceding clause, and all those questions have been answered
to his satisfaction and the satisfaction of his Purchaser
Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations of the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock"), are, or will be, held in
treasury; (ii) except as set forth in Section 4.01 of the Disclosure
Statement, the Owners own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements; (iii) each outstanding share of
Orthodontic Entity Common Stock has been legally and validly issued and
is, or will be, fully paid and nonassessable; (iv) there exist no
options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized
or outstanding securities of the Orthodontic Entity; and (v) no shares
of capital stock of the Orthodontic Entity have been issued or disposed
of in violation of the preemptive rights, rights of first refusal or
similar rights of any of the Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the
Seller and each Owner that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
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ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING.
On or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER
AND EACH OWNER. The obligations of the Seller and each Owner, with respect to
the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05.
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(d) The obligations of Apple with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on that
date, or waiver by Apple pursuant to Section 11.05, of the following conditions:
(i) each Owner Employment Agreement and the Service Agreement in substantially
the form attached hereto as Exhibit 7.01(d), then shall be in full force and
effect; (ii) any of the conditions set forth herein; and (iii) delivery to Apple
of a bill of sale and deeds, assignments and any other necessary instruments,
satisfactory in form and content and approved prior to Closing by Apple,
conveying all the Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions
hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after
the IPO Closing Date, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person directly or indirectly establish,
operate or provide orthodontist services at any orthodontic office, clinic or
other facility providing services similar to those provided by the Orthodontic
Entity or engage or participate in or finance any business which engages in
direct competition with the business being conducted by Apple, in either case,
anywhere within the City of Calgary south of the Bow River or within a radius of
eight miles of each location in which any of the Seller or the Seller
Subsidiaries was engaged in
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business on the date hereof or immediately prior to the IPO Closing Date,
whichever area is greater (the "Territory");
Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 2% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock of any publicly owned and traded entity.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
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Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the one-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") each Owner will not voluntarily, except with
Apple's consent: (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (A) any shares of Apple Common Stock
received in the Acquisition or (B) any interest in (including any option to buy
or sell) any of those shares of Apple Common Stock, in whole or in part, and
Apple will have no obligation to, and shall not, treat any such attempted
transfer as effective for any purpose; or (ii) engage in any transaction,
whether or not with respect to any shares of Apple Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of Apple Common Stock acquired pursuant to Section 2.04. The certificates
evidencing such Apple Common Stock will bear a legend containing such
information as Apple may deem necessary or appropriate.
Section 11.03 RESTRICTIONS ON TRANSFER OF AOI COMMON STOCK. (a)
During the one-year period ending on the first anniversary of the IPO Closing
Date (the "Restricted Period") (or if the one-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
AOI common shares receivable on conversion of the Apple Common Stock received
with respect to the Acquisition or (B) any interest in (including any option to
buy or sell) any of those shares, in whole or in part, and Apple and AOI will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any such shares or any interest therein, the intent or effect of
which is to reduce the risk of owning any such shares acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.03
shall not restrict any transfer of such shares acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01, Section 11.02 and
Section 11.03. The certificates evidencing such AOI common shares will bear a
legend substantially in the form set forth below and containing such other
information as AOI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE
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ONE-YEAR PERIOD ENDING ON __________ DATE THAT IS THE FIRST ANNIVERSARY
OF THE IPO CLOSING DATE (THE "RESTRICTED PERIOD"). ON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 and the AOI
shares into which they may be converted have not been and, except
pursuant to the Registration Rights Agreement, if applicable, will not
be registered under the Securities Act and therefore may not be resold
without compliance with the Securities Act and (ii) covenants that upon
conversion of the Apple Common Stock into AOI common shares, none of
such shares will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with
all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state and provincial securities
laws and regulations. All certificates evidencing shares of AOI issued
upon the aforesaid conversion of the Apple Common Stock shall bear the
following legend in addition to the legend prescribed by Section
11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock or AOI common
shares issued hereunder to each Owner will bear any legend required by the
securities or blue sky laws of the province or state in which that Owner
resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the
Private Placement Memorandum, each Owner represents and warrants to Apple that
such Owner has not directly or indirectly employed or become obligated to pay
any broker or similar agent in connection with the transactions contemplated
hereby and agree, to indemnify Apple against all Damage Claims arising out of
claims for any and all fees and commissions of brokers or similar agents
employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
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Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among each Owner, the Seller and Apple and supersede
all prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Owner
affected thereby to the extent that it (a) changes the several nature of that
Owner's representations and warranties (to the extent they are not already joint
and several as provided in Sections 4.01 and 11.03), (b) waives the consummation
of the IPO as a condition to consummation of the Acquisition or (c) amends or
waives this sentence. The waiver of any of the terms and conditions hereof shall
not be construed or interpreted as, or deemed to be, a waiver of any other term
or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) Apple and the Seller, respectively,
will each pay their, and their Representatives' fees, expenses and disbursements
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
of and compliance with all conditions to be performed by Apple under this
Agreement, including the costs of preparing the Registration Statement, and (b)
the Seller will pay all sales, use, transfer and other similar Taxes and fees
(collectively, "Transfer Taxes") incurred by the Seller or Apple in connection
with the transactions contemplated hereby which are not recoverable by Apple,
and the fees, expenses and disbursements of Counsel for the Seller and each
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Seller terminates this Agreement otherwise than as permitted by Article XII,
the Seller will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Seller's financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that
neither the Seller nor any Owner shall be required to reimburse Apple for such
fees, costs and expenses in the event such termination follows the death of an
Owner. The Seller will file all necessary documentation and Returns with respect
to all Transfer Taxes. In addition, Seller will pay all Taxes due upon receipt
of the consideration payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
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business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for
purposes of this Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth
in Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
290 10655 Southport Road S.W.
Calgary, Alberta
Attn: Dr. Duncan Y. Brown
with copies (which shall not constitute notice for
purposes of this Agreement) to:
Code Hunter Wittmann
1400 700 2nd Street S.W.
Calgary, Alberta
T2P 4V5
Attn: Kevin W. Keyes
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
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Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of
this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and
agrees that: (a) no firm commitment, binding agreement or promise or other
assurance of any kind, whether express or implied, oral or written, exists at
the date hereof that the Registration Statement will become effective or that
the IPO will occur at a particular price or within a particular range of prices
or occur at all; (b) neither Apple or any of its Representatives nor any
prospective underwriters in the IPO will have any liability to the Seller, each
Owner or any of their respective Affiliates or associates for any failure of (i)
the Registration Statement to become effective (provided, however, that Apple
will use its reasonable best efforts to cause the Registration Statement to
become effective prior to December 31, 1997) or (ii) the IPO to occur at a
particular price or within a particular range of prices or to occur at all; and
(c) the decision of Seller and each Owner to enter into this Agreement has been
or will be made independent of, and without reliance on, any statements,
opinions or other communications of, or due diligence investigations that have
been or will be made or performed by, any prospective underwriter relative to
Apple or the IPO. The Underwriter shall have no obligation to Seller or with
respect to any disclosure contained in the Registration Statement.
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ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement
may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other
hand, if the transactions contemplated by this Agreement to take place
at the Closing shall not have been consummated by December 31, 1997,
unless the failure of such transactions to be consummated results from
the willful failure of the party seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be performed or
adhered to by it prior to or at the Closing or thereafter on the IPO
Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Acquisition will be deemed for all purposes to have been abandoned
and of no force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the
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breach by that party of any of its representations, warranties or covenants set
forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ John G. Vondrak, D.D.S
Printed Name: John G. Vondrak,
D.D.S
Title: Chief Executive Officer
718842 ALBERTA INC.
By: /s/ John G. Vondrak, D.D.S
Printed Name: John G. Vondrak,
D.D.S
Title: Chief Executive Officer
DUNCAN Y. BROWN PROFESSIONAL CORP.
By: /s/ Duncan Y. Brown
Printed Name: Duncan Y. Brown
Title: President
/s/ Duncan Y. Brown
DR. DUNCAN Y. BROWN
18
EXHIBIT 2.7
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
ROGER L. BUMGARNER, D.D.S., P.C.,
ROGER BUMGARNER, D.D.S., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 2
Section 1.01 Certain Defined Terms................................... 2
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 5
Section 2.01 Acquired Assets and Excluded Assets..................... 5
Section 2.02 The Closing............................................. 6
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 7
Section 2.08 Mail Received After Closing............................. 7
Section 2.09 Obligations Assumed..................................... 7
Section 2.10 Liabilities and Obligations Not Assumed................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
OWNER.................................................... 8
Section 3.01 By Each Owner........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE OWNERS.......................................... 8
Section 4.01 By the Seller and Each Owner............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ................. 10
Section 5.01 By Apple................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 Of Each Party........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION .................................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 11
Section 8.01 Of Each Party Other Than the Seller..................... 11
ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 Indemnification Rights and Obligations.................. 12
ARTICLE X LIMITATIONS ON COMPETITION............................... 12
Section 10.01 Prohibited Activities.................................. 12
Section 10.02 Damages................................................ 13
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Section 10.03 Reasonable Restraint................................... 13
Section 10.04 Severability; Reformation.............................. 13
Section 10.05 [Intentionally Deleted]................................ 13
Section 10.06 Materiality............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 15
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 16
Section 11.07 Expenses............................................... 16
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 18
Section 11.14 Respecting the IPO..................................... 18
ARTICLE XII TERMINATION.................................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Roger L. Bumgarner, D.D.S., P.C., a Colorado professional corporation
("PC1"), Roger Bumgarner, D.D.S., P.C., a Colorado professional corporation
("PC2" and, together with PC1, the "Seller"), and the persons listed on the
signature pages hereof under the caption "Owners" (collectively, the "Owners,"
and each of those persons, individually, an "Owner"). This Agreement consists of
the Contribution Agreement set forth below and a separate document of Uniform
Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
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"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Gary J. Benson, Cairns,
Dworkin & Chambers, P.C., 3900 East Mexico Avenue, Suite 1300, Denver,
Colorado 80210.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means Roger Bumgarner, D.D.S., P.C., a Colorado
professional corporation, together with Roger L. Bumgarner, D.D.S., P.C.,
a Colorado professional corporation.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
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"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means, collectively, Roger L. Bumgarner, D.D.S., P.C., a
Colorado professional corporation and Roger Bumgarner, D.D.S., P.C., a
Colorado professional corporation.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, no par value, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
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"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
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(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
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Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or
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otherwise) of Seller or any Owner arising out of any claim, litigation or
proceeding threatened or pending on or before the IPO Pricing Date or out of any
claim, litigation or proceeding threatened or initiated after the IPO Pricing
Date to the extent based on or caused by any act or omission occurring, or
condition or circumstances existing, prior to the IPO Pricing Date, or any
condition caused by any act or omission occurring prior to the IPO Pricing Date,
or any product sold or manufactured by the Seller or any Owner or any service
provided by Seller or any Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Colorado, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of Colorado) in which it owns or
8
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leases property or in which the carrying on of its business as now
conducted so requires except where the failure to be so qualified, singly
or in the aggregate, would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 50,000 shares for Roger L. Bumgarner,
D.D.S., P.C. and 10 shares for Roger Bumgarner, D.D.S., P.C.
(collectively, "Seller Common Stock") of which ______ shares have been
issued and are now outstanding and no shares are held by the Seller as
treasury shares or (B) if Seller is a partnership, all of the partnership
interests authorized to be issued in the Charter Documents are listed in
Schedule 3.02, and (ii) no outstanding Derivative Securities of the Seller
exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Deleted;
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is capable of evaluating the merits and risks of
the proposed investment in the Apple Common Stock, or (2) such Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or such
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
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(f) Intentionally Deleted; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the
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period from the Closing to the IPO Closing Date, this Agreement may be
terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Colorado as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
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ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Roger L. Bumgarner, D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 25 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be
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received by each Owner pursuant to Section 2.04 which equals 1% of that
Partner's Pro Rata Share of the Transaction Value will represent, and be
received as, consideration for that Owner's agreement to observe the covenants
in this Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced),
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each Owner will not voluntarily, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Apple Common Stock received in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Apple
Common Stock, in whole or in part, and Apple will have no obligation to, and
shall not, treat any such attempted transfer as effective for any purpose; or
(ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by Owner pursuant
to Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or
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otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the SEC
and applicable state securities laws and regulations. All certificates
evidencing shares of Apple Common Stock issued pursuant to Section 2.04
will bear the following legend in addition to the legend prescribed by
Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Owner
affected thereby to the extent that it (a) changes the several nature of that
Owner's representations and warranties (to the extent they are not already joint
and several as provided in Sections 4.01 and 11.03), (b) waives the consummation
of the IPO as a condition to consummation of the Acquisition or (c) amends or
waives this sentence. The waiver of any of the terms and conditions hereof shall
not be construed or interpreted as, or deemed to be, a waiver of any other term
or condition hereof.
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Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the lesser of (i) the aggregate fees, costs and other
expenses invoiced to Apple by Arthur Andersen LLP in connection with its audit
of the Seller's financial statements at December 31, 1996 and for the 12-month
period then ended or (ii) $50,000; provided further, however, that neither the
Seller nor any Owner shall be required to reimburse Apple for such amount in the
event such termination follows the death of an Owner. The Seller will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, Seller will pay all Taxes due upon receipt of the consideration
payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
16
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson Walker L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Roger L. Bumgarner, D.D.S., P.C.
Two Oakwood Park Professional Center
Castle Rock, Colorado 80104
Attn: Roger L. Bumgarner, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Cairns, Dworkin & Chambers, P.C.
3900 East Mexico Avenue, Suite 1300
Denver, Colorado 80210
Attn: Gary J. Benson
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of
17
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the parties hereto as expressed herein, and if such a modification is not
possible, that provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
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(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
ROGER L. BUMGARNER, D.D.S., P.C.
By: /s/ Roger L. Bumgarner, D.D.S.
Printed Name: Roger L. Bumgarner, D.D.S.
Title: President
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ROGER BUMGARNER, D.D.S., P.C.
By: /s/ Roger L. Bumgarner, D.D.S.
Printed Name: Roger L. Bumgarner, D.D.S.
Title: President
SOLE STOCKHOLDER OF
ROGER L. BUMGARNER, D.D.S., P.C. and
ROGER BUMGARNER, D.D.S., P.C.
/s/ Roger L. Bumgarner, D.D.S.
Roger L. Bumgarner, D.D.S.
20
EXHIBIT 2.8
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 13, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.
AND
THOMAS K. CHUBB, D.D.S.
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.............. 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE.................. 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.............. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION.......................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
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Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS....................................... 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.............................................. 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 13, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means Phil Chubb, 1107
Sydney Dr., Charlotte, North Carolina 28270.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Colorado professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
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"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
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(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
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Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any
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environmental damage or harm of any type, including any actual or alleged damage
or harm to groundwater, surface water, well water, ground, soil, or the
atmosphere, or otherwise relating to any Hazardous Substance, (iv) any and all
employment or personnel-related liabilities whatsoever of the Owner, including,
but not limited to, any liability under any employment contract, liability for
wages or salary, liability for bonuses or commissions, liability for severance
(including without limitation as a result of this transaction), Title I, Part 6
of ERISA liability, Occupational Safety and Health Act of 1972, as amended
("OSHA") liability, liability for disabled individuals, workers' compensation
liability, ERISA plans, or ERISA plan obligations or liability, Federal Workers
Adjustment and Retraining Notification Act liability, sick pay, vacation
accruals, or similar matters, any profit sharing plan or any liability
thereunder, any pension plan or any liability thereunder, any welfare benefit
plan or any liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the Owner or any
service provided by the Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the
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date of this Agreement, and will be, as amended or supplemented pursuant to
Section 6.08, on the date of the Closing and the IPO Closing Date, true and
correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) the Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii) the
Owner is either an "accredited investor" as defined in Securities Act Rule
501(a) or, if the Owner is not such an investor, Section 4.01(e) of the
Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) the Owner (A) is able to bear the economic risk of an
investment in the Apple Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, and (C) either
(1) has such knowledge and experience in financial and business matters
that the Owner is capable of evaluating the merits and risks of the
proposed investment in the Apple Common Stock, or (2) the Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or the
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of
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Orthodontic Entity Common Stock, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies and shareholders'
agreements; (iii) each outstanding share of Orthodontic Entity Common
Stock has been, or will be, legally and validly issued and is, or will be,
fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
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Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Service Agreement and the Stockholder Employment Agreement then shall be in full
force and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for
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which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
being "Apple" for purposes of this Article X) within a radius of 25 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on
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the New York Stock Exchange or included in the Nasdaq National Market. For
purposes hereof and the respective Tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Acquisition Consideration to be received by the Owner pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Owner's agreement to observe the covenants in this Section
10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND
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EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Owner and Apple and supersede all prior agreements and understandings, both
written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Owner and Apple. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
Thomas K. Chubb, D.D.S.
5150 W. 80th Ave.
Westminster, Colorado 80030
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability
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of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
OWNER:
/s/ Thomas K. Chubb, D.D.S.
Printed Name: Thomas K. Chubb, D.D.S.
19
EXHIBIT 2.9
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
STANLEY D. CRAWFORD, D.D.S., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Stanley D. Crawford, D.D.S., P.C., a Colorado professional
corporation (the "Seller"), and the persons listed on the signature pages hereof
under the caption "Owners" (collectively, the "Owners," and each of those
persons, individually, an "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Cairns, Sworkin &
Chambers, P.C.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means Stanley D. Crawford, D.D.S. P.C., a
Colorado professional corporation.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
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"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Stanley D. Crawford, D.D.S., P.C.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, par value $1.00 per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
4
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ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
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(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and,
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to the extent that such mail and the contents thereof relate to the Business or
the Acquired Assets, deal with the contents thereof in its discretion, and to
the extent that it does not relate thereto, shall promptly deliver same to
Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Colorado, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of Colorado) in which it owns or leases property or
in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 50,000 shares of Seller Common Stock, of
which 1,000 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued
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in the Charter Documents are listed in Schedule 3.02, and (ii) no
outstanding Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Deleted;
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is capable of evaluating the merits and risks of
the proposed investment in the Apple Common Stock, or (2) such Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or such
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) Intentionally Deleted; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them
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at or before the Closing are subject to the satisfaction on or before the date
of the Closing, or waiver by such Seller and such Owner pursuant to Section
11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Seller and each Owner with respect to the actions to be taken
on the IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Colorado as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Stanley D. Crawford, D.D.S.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 25 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section
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10.01 by injunctions and restraining orders against such Owner if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any
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interest therein, the intent or effect of which is to reduce the risk of owning
the shares of Apple Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of Apple Common Stock acquired by Owner pursuant to Section 2.04 to any
of that Owner's Related Persons or employees who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the Apple Common Stock delivered to each Owner pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
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THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Owner
affected thereby to the extent that it (a) changes the several nature of that
Owner's representations and warranties (to the extent they are not already joint
and several as provided in Sections 4.01 and 11.03), (b) waives the consummation
of the IPO as a condition to consummation of the Acquisition or (c) amends or
waives this sentence. The waiver of any of the terms and conditions hereof shall
not be construed or interpreted as, or deemed to be, a waiver of any other term
or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
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Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the lesser of (i) the aggregate fees, costs and other
expenses invoiced to Apple by Arthur Andersen LLP in connection with its audit
of the Seller's financial statements at December 31, 1996 and for the 12-month
period then ended or (ii) $50,000; provided further, however, that neither the
Seller nor any Owner shall be required to reimburse Apple for such amount in the
event such termination follows the death of an Owner. The Seller will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, Seller will pay all Taxes due upon receipt of the consideration
payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
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(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Stanley D. Crawford, D.D.S., P.C.
11411 N. Pearl Street
Northglenn, Colorado 80233
Attn: Stanley D. Crawford, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Cairns, Sworkin & Chambers, P.C.
3900 East Mexico Avenue, Suite 1300
Denver, Colorado 80210
Attn: Gary J. Benson
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
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Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
18
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(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
STANLEY D. CRAWFORD, D.D.S., P.C.
By: /s/ Stanley D. Crawford, D.D.S.
Stanley D. Crawford, D.D.S.
President
OWNER:
/s/ Stanley D. Crawford, D.D.S.
Stanley D. Crawford, D.D.S.
20
EXHBIT 2.10
CONTRIBUTION AGREEMENT
DATED AS OF February 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
WESTERN NEW YORK ORTHODONTIC CARE, P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
i
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Western New York Orthodontic Care, P.C., a New York professional
corporation (the "Seller"), and the persons listed on the signature pages hereof
under the caption "Owners" (collectively, the "Owners," and each of those
persons, individually, an "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners" means Warren Gelman, Esq.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the New York professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
3
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"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Western New York Orthodontic Care, P.C.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, par value $___ per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
4
<PAGE>
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
5
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(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
6
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Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
7
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of New York, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of New York) in which it owns or leases property or
in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 200 shares of Seller Common Stock, of which
50 shares have been issued and are now outstanding and no shares are held
by the Seller as treasury shares or (B) if Seller is a partnership, all of
the partnership interests authorized to be issued
8
<PAGE>
in the Charter Documents are listed in Section 3.02 of the Disclosure
Statement, and (ii) no outstanding Derivative Securities of the Seller
exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Left Blank;
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to;
(f) (i) the capitalization of the Orthodontic Entity shall be
incompliance with the requirements of the applicable regulations of the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock"), are, or will be, held in
treasury; (ii) except as set forth in Section 4.01 of the Disclosure
Statement, the Owners own, or will own, all of the issued and outstanding
shares of Orthodontic Entity Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements; (iii) each outstanding share of Orthodontic
Entity Common Stock has been legally and validly issued and is, or will
be, fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is
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capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) such Owner's Purchaser Representative has
had an adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions or such Owner's Purchaser Representative has
asked all questions of the nature described in the immediately preceding
clause, and all those questions have been answered to his satisfaction and
the satisfaction of his Purchaser Representative.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing
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<PAGE>
will not include the completion of either the Acquisition or the delivery of a
bill of sale or the Acquisition Consideration pursuant to Section 2.04. Instead,
on the IPO Closing Date, all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of a bill of sale in exchange for the Acquisition Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Acquisition Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of New York as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the
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Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Anthony G. Deluke, D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 25 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will
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be effective unless it is signed by each Owner affected thereby to the extent
that it (a) changes the several nature of that Owner's representations and
warranties (to the extent they are not already joint and several as provided in
Sections 4.01 and 11.03), (b) waives the consummation of the IPO as a condition
to consummation of the Acquisition or (c) amends or waives this sentence. The
waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Seller's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that neither the Seller nor any Owner shall be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of an Owner. The Seller will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition,
Seller will pay all Taxes due upon receipt of the consideration payable to
Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Western New York Orthodontic Care, P.C.
2103 Sawyer Drive
Niagara Falls, New York 14304
Attn: Dr. Anthony G. Deluke
with copies (which shall not constitute notice for purposes of this
Agreement) to:
McGee & Gelman
200 Summer Street
Buffalo, New York 14213-5206
Attn: Warren Gelman, Esq.
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later;
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nor shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
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(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief
Financial Officer
SELLER:
By: /s/ Anthony G. Deluke, D.D.S.
Printed Name: Anthony G. Deluke, D.D.S.
Title: President
OWNER:
By: /s/ Anthony G. Deluke, D.D.S.
Printed Name: Anthony G. Deluke, D.D.S.
20
EXHIBIT 2.11
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.
AND
THE OWNER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.............. 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE.................. 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.............. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION.......................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
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Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS....................................... 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.............................................. 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means (NO COUNSEL
OBTAINED).
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Texas professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
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"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
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(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
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Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any
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environmental damage or harm of any type, including any actual or alleged damage
or harm to groundwater, surface water, well water, ground, soil, or the
atmosphere, or otherwise relating to any Hazardous Substance, (iv) any and all
employment or personnel-related liabilities whatsoever of the Owner, including,
but not limited to, any liability under any employment contract, liability for
wages or salary, liability for bonuses or commissions, liability for severance
(including without limitation as a result of this transaction), Title I, Part 6
of ERISA liability, Occupational Safety and Health Act of 1972, as amended
("OSHA") liability, liability for disabled individuals, workers' compensation
liability, ERISA plans, or ERISA plan obligations or liability, Federal Workers
Adjustment and Retraining Notification Act liability, sick pay, vacation
accruals, or similar matters, any profit sharing plan or any liability
thereunder, any pension plan or any liability thereunder, any welfare benefit
plan or any liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the Owner or any
service provided by the Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the
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date of this Agreement, and will be, as amended or supplemented pursuant to
Section 6.08, on the date of the Closing and the IPO Closing Date, true and
correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) the Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii) the
Owner is either an "accredited investor" as defined in Securities Act Rule
501(a) or, if the Owner is not such an investor, Section 4.01(e) of the
Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) the Owner (A) is able to bear the economic risk of an
investment in the Apple Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, and (C) either
(1) has such knowledge and experience in financial and business matters
that the Owner is capable of evaluating the merits and risks of the
proposed investment in the Apple Common Stock, or (2) the Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or the
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of
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Orthodontic Entity Common Stock, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies and shareholders'
agreements; (iii) each outstanding share of Orthodontic Entity Common
Stock has been, or will be, legally and validly issued and is, or will be,
fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
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Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Service Agreement and the Stockholder Employment Agreement then shall be in full
force and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for
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which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
being "Apple" for purposes of this Article X) within a radius of 25 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on
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the New York Stock Exchange or included in the Nasdaq National Market. For
purposes hereof and the respective Tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Acquisition Consideration to be received by the Owner pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Owner's agreement to observe the covenants in this Section
10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND
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EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Owner and Apple and supersede all prior agreements and understandings, both
written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Owner and Apple. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
(NO COUNSEL OBTAINED)
______________________________
______________________________
Attn: ________________________
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
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shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating Officer
OWNER:
/s/ Robert J. Dennington, D.D.S., M.S.D.
Printed Name: Robert J. Dennington, D.D.S., M.S.D.
19
EXHIBIT 2.12
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
AND
THE OWNER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS./................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER................... 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE..................... 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
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Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.................................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means Leontire & Schubb.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Connecticut professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
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"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
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(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
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Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any
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environmental damage or harm of any type, including any actual or alleged damage
or harm to groundwater, surface water, well water, ground, soil, or the
atmosphere, or otherwise relating to any Hazardous Substance, (iv) any and all
employment or personnel-related liabilities whatsoever of the Owner, including,
but not limited to, any liability under any employment contract, liability for
wages or salary, liability for bonuses or commissions, liability for severance
(including without limitation as a result of this transaction), Title I, Part 6
of ERISA liability, Occupational Safety and Health Act of 1972, as amended
("OSHA") liability, liability for disabled individuals, workers' compensation
liability, ERISA plans, or ERISA plan obligations or liability, Federal Workers
Adjustment and Retraining Notification Act liability, sick pay, vacation
accruals, or similar matters, any profit sharing plan or any liability
thereunder, any pension plan or any liability thereunder, any welfare benefit
plan or any liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the Owner or any
service provided by the Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the
7
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date of this Agreement, and will be, as amended or supplemented pursuant to
Section 6.08, on the date of the Closing and the IPO Closing Date, true and
correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) the Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii) the
Owner is either an "accredited investor" as defined in Securities Act Rule
501(a) or, if the Owner is not such an investor, Section 4.01(e) of the
Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) the Owner (A) is able to bear the economic risk of an
investment in the Apple Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, and (C) either
(1) has such knowledge and experience in financial and business matters
that the Owner is capable of evaluating the merits and risks of the
proposed investment in the Apple Common Stock, or (2) the Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or the
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of
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Orthodontic Entity Common Stock, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies and shareholders'
agreements; (iii) each outstanding share of Orthodontic Entity Common
Stock has been, or will be, legally and validly issued and is, or will be,
fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
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Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Service Agreement and the Stockholder Employment Agreement then shall be in full
force and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for
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which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
being "Apple" for purposes of this Article X) within a radius of 20 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on
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the New York Stock Exchange or included in the Nasdaq National Market. For
purposes hereof and the respective Tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Acquisition Consideration to be received by the Owner pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Owner's agreement to observe the covenants in this Section
10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND
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EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Owner and Apple and supersede all prior agreements and understandings, both
written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Owner and Apple. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
Leontire & Schubb
66 Long Wharf
Boston, MA 02110
Attn: Mark Schubb
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
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shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief
Financial Officer
OWNER:
Philip DePasquale, D.D.S.
/s/ Philip DePasquale, D.D.S.
Printed Name: Philip DePasquale, D.D.S.
19
EXHIBIT 2.13
CONTRIBUTION AGREEMENT
DATED AS OF February 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
ROBERT S. FIELDS, D.M.D., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ................................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Robert S. Fields, D.M.D., P.C. (the "Seller"), and the
persons listed on the signature pages hereof under the caption "Owners"
(collectively, the "Owners," and each of those persons, individually, an
"Owner"). This Agreement consists of the Contribution Agreement set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Mark Shub, Esq.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Connecticut professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
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"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Robert S. Fields, D.M.D.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, par value $10.00 per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
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"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
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(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
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Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Connecticut, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of Connecticut) in which it owns or leases property
or in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 5,000 shares of Seller Common Stock, of
which 100 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued
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in the Charter Documents are listed in Schedule 3.02, and (ii) no
outstanding Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Left Blank;
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to;
(f) (i) the capitalization of the Orthodontic Entity shall be
incompliance with the requirements of the applicable regulations of the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock"), are, or will be, held in
treasury; (ii) except as set forth in Section 4.01 of the Disclosure
Statement, the Owners own, or will own, all of the issued and outstanding
shares of Orthodontic Entity Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements; (iii) each outstanding share of Orthodontic
Entity Common Stock has been legally and validly issued and is, or will
be, fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is
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capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) such Owner's Purchaser Representative has
had an adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions or such Owner's Purchaser Representative has
asked all questions of the nature described in the immediately preceding
clause, and all those questions have been answered to his satisfaction and
the satisfaction of his Purchaser Representative.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing
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will not include the completion of either the Acquisition or the delivery of a
bill of sale or the Acquisition Consideration pursuant to Section 2.04. Instead,
on the IPO Closing Date, all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of a bill of sale in exchange for the Acquisition Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Acquisition Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Connecticut as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the
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Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Robert S. Fields, D.M.D., P.C.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 20 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will
15
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be effective unless it is signed by each Owner affected thereby to the extent
that it (a) changes the several nature of that Owner's representations and
warranties (to the extent they are not already joint and several as provided in
Sections 4.01 and 11.03), (b) waives the consummation of the IPO as a condition
to consummation of the Acquisition or (c) amends or waives this sentence. The
waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Seller's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that neither the Seller nor any Owner shall be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of an Owner. The Seller will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition,
Seller will pay all Taxes due upon receipt of the consideration payable to
Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Robert S. Fields, D.M.D., P.C.
125 Strawberry Hill Avenue
Stamford, Connecticut 06902
Attn: Robert S. Fields, D.M.D.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Mark Shub, Esq.
66 Long Wharf
Boston, Massachusetts 02110
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
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Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be
18
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consummated results from the willful failure of the party seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief
Financial Officer
SELLER: ROBERT S. FIELDS, D.M.D., P.C.
By: /s/ Robert S. Fields, D.M.D.
Printed Name: Robert S. Fields, D.M.D.
Title: President
OWNER:
By: /s/ Robert S. Fields, D.M.D.
Printed Name: Robert S. Fields, D.M.D.
20
EXHIBIT 2.14
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
ROBERT C. FRANTZ, D.D.S., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 5
Section 2.01 Acquired Assets and Excluded Assets..................... 5
Section 2.02 The Closing............................................. 6
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 7
Section 2.09 Obligations Assumed..................................... 7
Section 2.10 Liabilities and Obligations Not Assumed................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER............. 8
Section 3.01 By Each Owner........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE OWNERS.................................... 8
Section 4.01 By the Seller and Each Owner............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ................. 10
Section 5.01 By Apple................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.............. 10
Section 6.01 Of Each Party........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
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ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 11
Section 8.01 Of Each Party Other Than the Seller..................... 11
ARTICLE IX INDEMNIFICATION.......................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 12
Section 10.01 Prohibited Activities.................................. 12
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 13
Section 10.04 Severability; Reformation.............................. 13
Section 10.05 [Intentionally Deleted]................................ 13
Section 10.06 Materiality............................................ 13
ARTICLE XI GENERAL PROVISIONS....................................... 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 15
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 16
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 18
Section 11.14 Respecting the IPO..................................... 18
ARTICLE XII TERMINATION.............................................. 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Robert C. Frantz, D.D.S., P.C., a California professional corporation
(the "Seller"), and the persons listed on the signature pages hereof under the
caption "Owners" (collectively, the "Owners," and each of those persons,
individually, an "Owner"). This Agreement consists of the Contribution Agreement
set forth below and a separate document of Uniform Provisions, which shall be a
part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Morgan, Miller & Blair.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means Robert C. Frantz, D.D.S., P.C.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
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"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Robert C. Frantz, D.D.S., P.C.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, par value $___ per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
4
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"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
5
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(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
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Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of California, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of California in which it owns or leases property or
in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 200,000 shares of Seller Common Stock, of
which 8,500 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be
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issued in the Charter Documents are listed in Schedule 3.02, and (ii) no
outstanding Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Deleted;
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is capable of evaluating the merits and risks of
the proposed investment in the Apple Common Stock, or (2) such Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or such
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) Intentionally Deleted; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner (i) that the terms of the Service Agreement, except with respect
to Article VI thereof, are substantially similar to the terms of the service
agreements to be entered into by the Founding Companies from the State of
Colorado and (ii) that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
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(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of California as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
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ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Robert C. Frantz, D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 20 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party
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hereto agrees that the percentage of the cash portion of the Acquisition
Consideration to be received by each Owner pursuant to Section 2.04 which equals
1% of that Partner's Pro Rata Share of the Transaction Value will represent, and
be received as, consideration for that Owner's agreement to observe the
covenants in this Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted
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Period") (or if the two-year "holding" period for restricted securities under
Rule 144 under the Securities Act is reduced by the SEC, the Restricted Period
will be correspondingly reduced), each Owner will not voluntarily, except
pursuant to and in accordance with the applicable provisions of the Registration
Rights Agreement: (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (A) any shares of Apple Common Stock
received in the Acquisition or (B) any interest in (including any option to buy
or sell) any of those shares of Apple Common Stock, in whole or in part, and
Apple will have no obligation to, and shall not, treat any such attempted
transfer as effective for any purpose; or (ii) engage in any transaction,
whether or not with respect to any shares of Apple Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of Apple Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of Apple Common Stock acquired by Owner pursuant to Section 2.04 to any
of that Owner's Related Persons or employees who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the Apple Common Stock delivered to each Owner pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii)
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covenants that none of the shares of Apple Common Stock issued to Seller
pursuant to Section 2.04 will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and
the rules and regulations of the SEC and applicable state securities laws
and regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Owner
affected thereby to the extent that it (a) changes the several nature of that
Owner's representations and warranties (to the extent they are not already joint
and several as provided in Sections 4.01 and 11.03), (b) waives the consummation
of the IPO as a condition to consummation of the Acquisition or (c) amends or
waives this
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sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the lesser of (x) the aggregate fees, costs and other
expenses invoiced to Apple by Arthur Andersen LLP in connection with its audit
of the Seller's financial statements at December 31, 1996 and for the 12-month
period then ended or (y) $50,000; provided further, however, that neither the
Seller nor any Owner shall be required to reimburse Apple for such amount in the
event such termination follows the death of an Owner. The Seller will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, Seller will pay all Taxes due upon receipt of the consideration
payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Robert C. Frantz, D.D.S., P.C.
911 San Ramon Valley Blvd., Suite 200
Danville, California 94526
Attn: Dr. Robert C. Frantz
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Morgan, Miller & Blair
1676 North California Blvd., Suite 200
Walnut Creek, California 94596-4137
Attn: Darryl Ott
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later;
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nor shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
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(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
ROBERT C. FRANTZ, D.D.S., P.C.
By: /s/ Robert C. Frantz, D.D.S.
Printed Name: Robert C. Frantz, D.D.S.
Title: President
OWNERS:
By: /s/ Robert C. Frantz, D.D.S.
Printed Name: Robert C. Frantz, D.D.S.
20
EXHIBIT 2.15
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 12, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
ANDREW GIRARDOT, JR., D.D.S., P.C.
AND
THE OWNER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
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Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 12, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Andrew Girardot, Jr. D.D.S., P.C., a Colorado professional
corporation (the "Seller"), and the persons listed on the signature pages hereof
under the caption "Owners" (collectively, the "Owners," and each of those
persons, individually, an "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
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"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Cairns, Dworkin, &
Chambers, P.C.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owner
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means Andrew Girardot, Jr., D.D.S., P.C., a
Colorado professional corporation.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
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"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owner, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Andrew Girardot, Jr. D.D.S., P.C.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, no par value per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
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"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
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(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
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Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
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indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Colorado, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents
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to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation or partnership in all jurisdictions (other than the
State of Colorado) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where the
failure to be so qualified, singly or in the aggregate, would not have a
Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 1,000 shares of Seller Common Stock, of
which 100 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued in
the Charter Documents are listed in Schedule 3.02, and (ii) no outstanding
Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Deleted;
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is capable of evaluating the merits and risks of
the proposed investment in the Apple Common Stock, or (2) such Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for
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additional acquisitions or such Owner's Purchaser Representative has asked
all questions of the nature described in the immediately preceding clause,
and all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(f) Intentionally Deleted; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing
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will not include the completion of either the Acquisition or the delivery of a
bill of sale or the Acquisition Consideration pursuant to Section 2.04. Instead,
on the IPO Closing Date, all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of a bill of sale in exchange for the Acquisition Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Acquisition Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Colorado as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the
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Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Shares of the
Transaction Value is 100% for Andrew Girardot, Jr., D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 25 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both
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written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Seller and Apple; provided, however, that no
such amendment, modification, supplement or waiver will be effective unless it
is signed by each Owner affected thereby to the extent that it (a) changes the
several nature of that Owner's representations and warranties (to the extent
they are not already joint and several as provided in Sections 4.01 and 11.03),
(b) waives the consummation of the IPO as a condition to consummation of the
Acquisition or (c) amends or waives this sentence. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the lesser of (i) the aggregate fees, costs and other
expenses invoiced to Apple by Arthur Andersen LLP in connection with its audit
of the Seller's financial statements at December 31, 1996 and for the 12-month
period then ended or (ii) $50,000; provided further, however, that neither the
Seller nor any Owner shall be required to reimburse Apple for such amount in the
event such termination follows the death of an Owner. The Seller will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, Seller will pay all Taxes due upon receipt of the consideration
payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at
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the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
4380 So. Syracuse St., #501
Denver, CO 80237
Attn: Andrew Girardot, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Cairns, Dworkin & Chambers, P.C.
3900 E. Mexico Avenue, Suite 1300
Denver, CO 80210
Attn: Gary Benson
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any
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such right, power or remedy, nor shall it be construed, deemed or interpreted as
a waiver of or acquiescence in any such breach or default, or of any similar
breach or default occurring later; nor shall any waiver of any single breach or
default be construed, deemed or interpreted as a waiver of any other breach or
default hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
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ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief Financial
Officer
SELLER: ANDREW GIRARDOT, JR., D.D.S., P.C.
By: /s/ Andrew Girardot, Jr., D.D.S.
Printed Name: Andrew Girardot, Jr., D.D.S.
Title: President
OWNERS: ANDREW GIRARDOT, JR., D.D.S.
By: /s/ Andrew Girardot, Jr., D.D.S.
Printed Name: Andrew Girardot, Jr., D.D.S.
Title: Sole Shareholder
20
EXHIBIT 2.16
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
BRUCE S. HARRIS, D.D.S., INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 5
Section 2.03 Certain Effects of the Merger........................... 5
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 6
Section 2.06 Fractional Shares....................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 7
Section 3.01 By Each Stockholder..................................... 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 13
Section 10.06 Materiality............................................ 13
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ARTICLE XI. GENERAL PROVISIONS........................................ 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Bruce S. Harris, D.D.S., Inc. a California corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder"). This Agreement consists of the
Agreement and Plan of Reorganization set forth below and a separate document of
Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
"Agreed Rate" means 8.0% per annum.
<PAGE>
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the California Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Bruce S. Harris, D.D.S., Inc. a California
corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means:
Mr. Gerald M. Chizever
Richman, Lawrence, Mann, Greene, Arbiter & Chizever
9601 Wilshire Blvd.
Beverly Hills, California 90210
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
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"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Bruce S. Harris, D.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of California.
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Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock
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which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Sections 1300-1312 of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under Sections 1300-1312 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
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Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
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(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of California, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
California) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which ____ shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
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(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of California; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which
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provision is made in Article VI of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of California), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of California as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect
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to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of the following conditions: (i) the Stockholder
Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; and
(ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Bruce S. Harris, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
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(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
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Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN
OF REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS
CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES
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REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY
OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES
UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE
CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
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Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse
15
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Apple for such fees, costs and expenses in the event such termination follows
the death of the Stockholder. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or Apple or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their addresses
set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Bruce S. Harris, D.D.S., Inc.
9092 Talbert Avenue, Suite 14
Fountain Valley, California 92708
Attn: Bruce S. Harris, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Mr. Gerald M. Chizever
Richman, Lawrence, Mann, Greene, Arbiter & Chizever
9601 Wilshire Blvd.
Beverly Hills, California 90210
16
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Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
17
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ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of California, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of California in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the
18
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breach by that party of any of its representations, warranties or covenants set
forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /S/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
BRUCE S. HARRIS, D.D.S., Inc.
By: /s/ Bruce S. Harris, D.D.S.
Printed Name: Bruce S. Harris, D.D.S.
Title: President
STOCKHOLDERS:
/s/ Bruce S. Harris, D.D.S.
Printed Name: Bruce S. Harris, D.D.S.
/s/ Karen Z. Harris
Printed Name: Karen Z. Harris
19
EXHIBIT 2.17
CONTRIBUTION AGREEMENT
DATED AS OF February 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
JAMES H. JENNINGS, D.D.S., P.A.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
i
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), James H. Jennings, D.D.S., P.A. (the "Seller"), and the
persons listed on the signature pages hereof under the caption "Owners"
(collectively, the "Owners," and each of those persons, individually, an
"Owner"). This Agreement consists of the Contribution Agreement set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means James F. Hart, Esq.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the New Mexico professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
3
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"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means James H. Jennings, D.D.S.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, no par value, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
4
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"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
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(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
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Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of New Mexico, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of New Mexico) in which it owns or leases property
or in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 50,000 shares of Seller Common Stock, of
which 1,000 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued
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in the Charter Documents are listed in Schedule 3.02, and (ii) no
outstanding Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Left Blank;
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to;
(f) (i) the capitalization of the Orthodontic Entity shall be
incompliance with the requirements of the applicable regulations of the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock"), are, or will be, held in
treasury; (ii) except as set forth in Section 4.01 of the Disclosure
Statement, the Owners own, or will own, all of the issued and outstanding
shares of Orthodontic Entity Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements; (iii) each outstanding share of Orthodontic
Entity Common Stock has been legally and validly issued and is, or will
be, fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is
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capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) such Owner's Purchaser Representative has
had an adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions or such Owner's Purchaser Representative has
asked all questions of the nature described in the immediately preceding
clause, and all those questions have been answered to his satisfaction and
the satisfaction of his Purchaser Representative.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing
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will not include the completion of either the Acquisition or the delivery of a
bill of sale or the Acquisition Consideration pursuant to Section 2.04. Instead,
on the IPO Closing Date, all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of a bill of sale in exchange for the Acquisition Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Acquisition Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of New Mexico as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the
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Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for James H. Jennings, D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 50 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will
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be effective unless it is signed by each Owner affected thereby to the extent
that it (a) changes the several nature of that Owner's representations and
warranties (to the extent they are not already joint and several as provided in
Sections 4.01 and 11.03), (b) waives the consummation of the IPO as a condition
to consummation of the Acquisition or (c) amends or waives this sentence. The
waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Seller's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that neither the Seller nor any Owner shall be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of an Owner. The Seller will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition,
Seller will pay all Taxes due upon receipt of the consideration payable to
Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
James H. Jennings, D.D.S., P.A.
P.O. Box 1774
Clovis, New Mexico 88101
Attn: James H. Jennings, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
James F. Hart, Esq.
908 Colonial Parkway
Clovis, New Mexico 88101
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
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Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be
18
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consummated results from the willful failure of the party seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
19
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief
Financial Officer
SELLER: JAMES H. JENNINGS, D.D.S., P.A.
By: /s/ James H. Jennings, D.D.S.
Printed Name: James H. Jennings, D.D.S.
Title: President
OWNERS:
By: /s/ James H. Jennings, D.D.S.
Printed Name: James H. Jennings, D.D.S.
20
EXHIBIT 2.18
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
PHILLIP MILANOVICH, D.D.S, M.S., P.C.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME....................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION................................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ii
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Phillip Milanovich, D.D.S., M.S., P.C., a professional
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder"). This Agreement consists
of the Agreement and Plan of Reorganization set forth below and a separate
document of Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Phillip Milanovich, D.D.S., a _______________
professional corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means ________.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the _____________________ professional
corporation or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means ________________________________.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of _______________.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of ___________________ of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under ________________ of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
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Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
6
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of _________________, and each of the Company
and the Company Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than the
State of _____________) in which it owns or leases property or in which
the carrying on of its business as now conducted so requires except where
the failure to be so qualified, singly or in the aggregate, would not have
a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
________ shares of Company Common Stock, of which _________ shares have
been issued and are now outstanding and no shares are held by the Company
as treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of _______________; and
(ii) each Stockholder shall have executed and delivered to the Company, in
form and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of __________________), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
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Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of _______________ as of a Current Date, of the Company and each
Company Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a)
and 7.04(a). The obligations of Apple with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) the Stockholder Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Shares of the
Transaction Value are ___% and ___%, respectively, for _______________ and
________________.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of ____ miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
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GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This
14
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Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Required Stockholders, the Company and Apple;
provided, however, that no such amendment, modification, supplement or waiver
will be effective unless it is signed by each Stockholder affected thereby to
the extent that it (a) changes the several nature of that Stockholder's
representations and warranties (to the extent they are not already joint and
several as provided in Sections 4.01 and 11.03), (b) reduces the amount, or
changes the components, of the Merger Consideration that Stockholder is entitled
to receive pursuant to Section 2.04, as adjusted pursuant to Section 2.05(f),
(c) waives the consummation of the IPO as a condition to consummation of the
Merger or (d) amends or waives this sentence. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at
15
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the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their addresses
set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
--------------------------
--------------------------
--------------------------
Attn:_____________________
with copies (which shall not constitute notice for purposes of this
Agreement) to:
--------------------------
--------------------------
---------------------------
Attn:______________________
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later;
16
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nor shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take
17
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place at the Closing shall not have been consummated by December 31, 1997,
unless the failure of such transactions to be consummated results from the
willful failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Montana, but before the IPO has been consummated, Apple
will take all actions that Counsel for the Company and the Stockholders advises
Apple are required by the applicable laws of the State of Montana in
order to rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief
Financial Officer
PHILLIP MILANOVICH, D.D.S., M.S., P.C.
/s/ Phillip Milanovich, D.D.S., M.S.
Printed Name: Phillip Milanovich, D.D.S.
Title: President
STOCKHOLDERS:
/s/ Phillip Milanovich, D.D.S., M.S.
Printed Name: Phillip Milanovich,
D.D.S.
19
EXHIBIT 2.19
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.
AND
BOWEN D. MILES, D.M.D.
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.............. 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE.................. 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.............. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION.......................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
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Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS....................................... 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.............................................. 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means ____________________.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Nevada professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
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"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
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(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
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Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any
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environmental damage or harm of any type, including any actual or alleged damage
or harm to groundwater, surface water, well water, ground, soil, or the
atmosphere, or otherwise relating to any Hazardous Substance, (iv) any and all
employment or personnel-related liabilities whatsoever of the Owner, including,
but not limited to, any liability under any employment contract, liability for
wages or salary, liability for bonuses or commissions, liability for severance
(including without limitation as a result of this transaction), Title I, Part 6
of ERISA liability, Occupational Safety and Health Act of 1972, as amended
("OSHA") liability, liability for disabled individuals, workers' compensation
liability, ERISA plans, or ERISA plan obligations or liability, Federal Workers
Adjustment and Retraining Notification Act liability, sick pay, vacation
accruals, or similar matters, any profit sharing plan or any liability
thereunder, any pension plan or any liability thereunder, any welfare benefit
plan or any liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the Owner or any
service provided by the Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the
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date of this Agreement, and will be, as amended or supplemented pursuant to
Section 6.08, on the date of the Closing and the IPO Closing Date, true and
correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) the Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii) the
Owner is either an "accredited investor" as defined in Securities Act Rule
501(a) or, if the Owner is not such an investor, Section 4.01(e) of the
Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) the Owner (A) is able to bear the economic risk of an
investment in the Apple Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, and (C) either
(1) has such knowledge and experience in financial and business matters
that the Owner is capable of evaluating the merits and risks of the
proposed investment in the Apple Common Stock, or (2) the Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or the
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of
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Orthodontic Entity Common Stock, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies and shareholders'
agreements; (iii) each outstanding share of Orthodontic Entity Common
Stock has been, or will be, legally and validly issued and is, or will be,
fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
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Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Service Agreement and the Stockholder Employment Agreement then shall be in full
force and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for
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which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
being "Apple" for purposes of this Article X) within a radius of 10 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on
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the New York Stock Exchange or included in the Nasdaq National Market. For
purposes hereof and the respective Tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Acquisition Consideration to be received by the Owner pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Owner's agreement to observe the covenants in this Section
10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND
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EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Owner and Apple and supersede all prior agreements and understandings, both
written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Owner and Apple. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
Bowen D. Miles, D.M.D.
100 E. Lake Mead Drive
Henderson, Nevada 89015
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability
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of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
OWNER:
/s/ Bowen D. Miles, D.M.D.
Printed Name: Bowen D. Miles, D.M.D.
19
EXHIBIT 2.20
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
MARK J. MILLS, D.D.S., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 Acquired Assets and Excluded Assets..................... 5
Section 2.02 The Closing............................................. 6
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 7
Section 2.09 Obligations Assumed..................................... 7
Section 2.10 Liabilities and Obligations Not Assumed................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 By Each Owner........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 By the Seller and Each Owner............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 By Apple................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 Of Each Party........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 Of Each Party Other Than the Seller..................... 11
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 Indemnification Rights and Obligations.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 Prohibited Activities.................................. 12
Section 10.02 Damages................................................ 13
Section 10.03 Reasonable Restraint................................... 13
Section 10.04 Severability; Reformation.............................. 13
Section 10.05 [Intentionally Deleted]................................ 13
Section 10.06 Materiality............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 14
Section 11.03 Brokers and Agents..................................... 15
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 16
Section 11.07 Expenses............................................... 16
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 18
Section 11.12 Reformation and Severability........................... 18
Section 11.13 Remedies Cumulative.................................... 18
Section 11.14 Respecting the IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 19
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), Mark J. Mills, D.D.S., P.C., a Colorado professional corporation (the
"Seller"), and the persons listed on the signature pages hereof under the
caption "Owners" (collectively, the "Owners," and each of those persons,
individually, an "Owner"). This Agreement consists of the Contribution Agreement
set forth below and a separate document of Uniform Provisions, which shall be a
part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Gary J. Benson, Cairns,
Dworkin & Chambers, P.C., 3900 East Mexico Avenue, Suite 1300, Denver,
Colorado 80210.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means Mark J. Mills, D.D.S., P.C., a Colorado
professional corporation.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
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"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Mark J. Mills, D.D.S., P.C., a Colorado professional
corporation.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, no par value, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
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ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
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(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and,
6
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to the extent that such mail and the contents thereof relate to the Business or
the Acquired Assets, deal with the contents thereof in its discretion, and to
the extent that it does not relate thereto, shall promptly deliver same to
Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Colorado, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of Colorado) in which it owns or leases property or
in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 50,000 shares of Seller Common Stock, of
which 1,000 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued
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in the Charter Documents are listed in Schedule 3.02, and (ii) no
outstanding Derivative Securities of the Seller exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Deleted;
(e) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is capable of evaluating the merits and risks of
the proposed investment in the Apple Common Stock, or (2) such Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or such
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) Intentionally Deleted; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them
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at or before the Closing are subject to the satisfaction on or before the date
of the Closing, or waiver by such Seller and such Owner pursuant to Section
11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Seller and each Owner with respect to the actions to be taken
on the IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Colorado as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Mark J. Mills, D.D.S.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 25 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section
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10.01 by injunctions and restraining orders against such Owner if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any
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interest therein, the intent or effect of which is to reduce the risk of owning
the shares of Apple Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of Apple Common Stock acquired by Owner pursuant to Section 2.04 to any
of that Owner's Related Persons or employees who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the Apple Common Stock delivered to each Owner pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
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THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Owner
affected thereby to the extent that it (a) changes the several nature of that
Owner's representations and warranties (to the extent they are not already joint
and several as provided in Sections 4.01 and 11.03), (b) waives the consummation
of the IPO as a condition to consummation of the Acquisition or (c) amends or
waives this sentence. The waiver of any of the terms and conditions hereof shall
not be construed or interpreted as, or deemed to be, a waiver of any other term
or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
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Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the lesser of (i) the aggregate fees, costs and other
expenses invoiced to Apple by Arthur Andersen LLP in connection with its audit
of the Seller's financial statements at December 31, 1996 and for the 12-month
period then ended or (ii) $50,000; provided further, however, that neither the
Seller nor any Owner shall be required to reimburse Apple for such amount in the
event such termination follows the death of an Owner. The Seller will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, Seller will pay all Taxes due upon receipt of the consideration
payable to Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
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(ii) if to an Owner, addressed to them at their address set forth in
Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Mark J. Mills, D.D.S., P.C.
2190 Academy Circle
Coloardo Springs, Colorado 80909
Attn: Mark J. Mills, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Cairns, Dworkin & Chambers, P.C.
3900 East Mexico Avenue, Suite 1300
Denver, Colorado 80210
Attn: Gary J. Benson
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
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Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
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(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ John G. Vondrak, D.D.S.
Printed Name: John G. Vondrak, D.D.S.
Title: Chief Executive Officer
MARK J. MILLS, D.D.S., P.C.
By: /s/ Mark J. Mills, D.D.S.
Printed Name: Mark J. Mills, D.D.S.
Title: President
OWNER:
By: /s/ Mark J. Mills, D.D.S.
Printed Name: Mark J. Mills, D.D.S.
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EXHIBIT 2.21
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
CARLOS F. NAVARRO, D.D.S., M.S.D., P.C.
AND
THE STOCKHOLDERS NAMED HEREIN
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TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Carlos F. Navarro, D.D.S., M.S.D., P.C., a Texas
professional corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Texas Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Carlos F. Navarro, D.D.S., M.S.D., P.C., a Texas
professional corporation.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Wilson, Elser,
Moskowitz, Edelman & Dicker.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
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"Dissenting Shares" has the meaning specified in Section 2.04.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Texas professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Carlos F. Navarro, D.D.S., M.S.D.
"Restricted Period" has the meaning specified in Section 11.02.
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"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents
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of Apple then in effect will become and thereafter remain (until changed in
accordance with (i) the applicable law (in the case of the articles of
incorporation) or (ii) its terms (in the case of the bylaws)) the Charter
Documents of the Surviving Corporation, (e) the board of directors of Apple
immediately prior to the Effective Time will be the board of directors of the
Surviving Corporation, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Delaware and the Charter Documents of the Surviving Corporation, and
(f) the officers of Apple immediately prior to the Effective Time will be the
respective officers of the Surviving Corporation, subject to the provisions of
the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Section 5.11 of the BCA, it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under Section 5.11 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced
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pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of Apple Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. All shares of Apple Common Stock issuable in the
Merger will be deemed for all purposes to have been issued by Apple at the
Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or
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supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
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(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Texas, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Texas)
in which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to
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engage (if the applicable Organization State laws governing the Company so
permit) and (2) abolish the preemptive rights of holders of Company Common
Stock and (B) the articles reflecting these amendments shall have been
duly filed with and accepted by the Secretary of State of the State of
Texas, and (ii) each Stockholder shall have executed and delivered to the
Company, in form and substance satisfactory to Apple, a written instrument
that: (A) acknowledges the Company is and has, and releases the Company
for having and continuing to be, engaged in businesses beyond the purposes
presently set forth in the Company's articles of incorporation; and (B)
(1) acknowledges the Company may have issued and sold Company Common Stock
to one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of
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State of the State of Texas), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Texas as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
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ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Shares of the
Transaction Value is 100% for Carlos F. Navarro, D.D.S., M.S.D.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in
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competition with the Company, any Company Subsidiary or Apple within the
Territory and (ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder
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is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
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OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON __________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO
CLOSING DATE] (THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING"
PERIOD FOR RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT
OF 1933 IS REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE
RESTRICTED PERIOD WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST
OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor
14
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trustees of that trust). Neither this Agreement nor any other Transaction
Document is intended, or shall be construed, deemed or interpreted, to confer on
any Person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as provided in Section 6.05(b) or 11.14, in Article IX or as
otherwise provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company
15
<PAGE>
or Apple or the Surviving Corporation, will pay all Taxes due upon receipt of
the consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
4514 Cole Avenue, Suite 910
Highland Park Place Building
Dallas, Texas 75205
Attn: Carlos F. Navarro, D.D.S., M.S.D.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Wilson, Elser, Moskowitz, Edelman & Dicker
1201 Elm Street
Dallas, Texas 75202
Attn: Doug Noah
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
16
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OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
17
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ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Texas, but before the IPO has been consummated, Apple will take all
actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Texas in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto
18
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except (a) as provided in Section 11.07 and (b) to the extent that such
liability is based on the breach by that party of any of its representations,
warranties or covenants set forth in this Agreement.
[signatures appear on the following page]
19
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
CARLOS F. NAVARRO, D.D.S., M.S.D., P.C.
By: /s/ Carlos Navarro, D.D.S., M.S.D.
Printed Name: Carlos Navarro, D.D.S.,
M.S.D.
Title: President
STOCKHOLDER:
/s/ Carlos Navarro, D.D.S., M.S.D.
Printed Name: Carlos Navarro, D.D.S.,
M.S.D.
20
EXHIBIT 2.22
CONTRIBUTION AGREEMENT
DATED AS OF February 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
PAUL RIGALI, D.D.S., P.C.
AND
THE OWNERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS
ASSUMED........................................................ 5
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS..................... 5
Section 2.02 THE CLOSING............................................. 6
Section 2.04 ACQUISITION PRICE....................................... 6
Section 2.05 ALLOCATION REPORTING.................................... 6
Section 2.06 FRACTIONAL SHARES....................................... 6
Section 2.07 ACCOUNTS RECEIVABLE..................................... 6
Section 2.08 MAIL RECEIVED AFTER CLOSING............................. 7
Section 2.09 OBLIGATIONS ASSUMED..................................... 7
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH OWNER................... 8
Section 3.01 BY EACH OWNER........................................... 8
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE OWNERS.......................................... 8
Section 4.01 BY THE SELLER AND EACH OWNER............................ 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE ....................... 10
Section 5.01 BY APPLE................................................ 10
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 10
Section 6.01 OF EACH PARTY........................................... 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION ............................................. 10
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 10
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE...................... 11
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER..................... 11
i
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ARTICLE IX INDEMNIFICATION................................................ 12
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 12
ARTICLE X LIMITATIONS ON COMPETITION..................................... 12
Section 10.01 PROHIBITED ACTIVITIES.................................. 12
Section 10.02 DAMAGES................................................ 13
Section 10.03 REASONABLE RESTRAINT................................... 13
Section 10.04 SEVERABILITY; REFORMATION.............................. 13
Section 10.05 [INTENTIONALLY DELETED]................................ 13
Section 10.06 MATERIALITY............................................ 13
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 14
Section 11.03 BROKERS AND AGENTS..................................... 15
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 15
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 15
Section 11.06 COUNTERPARTS........................................... 16
Section 11.07 EXPENSES............................................... 16
Section 11.08 NOTICES................................................ 16
Section 11.09 GOVERNING LAW.......................................... 17
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 17
Section 11.11 TIME................................................... 18
Section 11.12 REFORMATION AND SEVERABILITY........................... 18
Section 11.13 REMEDIES CUMULATIVE.................................... 18
Section 11.14 RESPECTING THE IPO..................................... 18
ARTICLE XII TERMINATION................................................... 18
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 18
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 19
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Paul H. Rigali, D.D.S., P.C., a Connecticut professional
corporation (the "Seller"), and the persons listed on the signature pages hereof
under the caption "Owners" (collectively, the "Owners," and each of those
persons, individually, an "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) The Seller will sell, transfer, assign and deliver to Apple, on
the terms and subject to the conditions set forth herein, substantially
all of the tangible and intangible assets used by Seller in the business
(the "Business") of providing orthodontic services to patients (the
"Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Seller, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Seller have approved and
adopted this Agreement to effect a transaction pursuant to Section 351 of the
Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in
<PAGE>
this Agreement and not defined below in this Section 1.01 have the respective
meanings assigned to them in the Preliminary Statement or Section 1.02 found in
the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any Owner, Seller, Apple or the Subsidiaries of the Seller or
Apple in connection with the possible acquisition by any of them of that
Entity or (ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Seller and the Owners means Leontire & Shub.
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"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Seller and the Owners
herein, (b) it is confirmed that no exception is taken to that
representation and warranty or (c) additional information is provided with
respect to a particular provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Seller as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Seller's nine-month period ended September 30, 1996 and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the Connecticut professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
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"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
each Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Pro Rata Share" means for each Owner (a) if Seller is a
corporation, the fraction expressed as a percentage (i) the numerator of
which is the number of shares of outstanding Seller Common Stock owned by
that Person, as set forth in Section 3.02 of the Disclosure Statement, and
(ii) the denominator of which is the total number of shares of outstanding
Seller Common Stock owned by all Owners, as set forth in Section 3.02 of
the Disclosure Statement, or (b) if Seller is a partnership, the fraction
expressed as a percentage (i) the numerator of which is the number of
partnership interests owned by that person, as set forth in Section 3.02
of the Disclosure Statement, and (ii) the denominator of which is the
total number of outstanding partnership interests owned by all Owners, as
set forth in Section 3.02 of the Disclosure Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Seller" means Paul H. Rigali, D.D.S., P.C.
"Seller Common Stock" means, if Seller is a corporation, the common
stock, par value $___ per share, of the Seller.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owners and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Seller's revenues
(less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
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"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, Seller is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from
Seller, all of the tangible and intangible assets used by the Seller in the
Business (whether or not included below), including the following assets,
properties and rights of Seller (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Seller immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Seller's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of Seller under express or implied warranties, if
any, from the suppliers of the Seller, manufacturers or others with
respect to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the
Seller's logo and all corporate, assumed and other names of the Seller,
and all rights of action on account of past, present, and future
unauthorized use or infringement thereof;
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(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Seller, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 INTENTIONALLY DELETED.
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and Seller agree to report
the allocation of the Acquisition Consideration among the Acquired Assets, the
Service Agreement and the covenant not to compete contained in Section 10.01 as
Apple and Seller shall mutually determine. Apple shall advise Seller of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. Seller agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Seller any checks received on
account of any such receivables or other items. Seller will transfer to Apple
any cash or other property which Seller may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by Seller (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
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Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Seller that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion, and to the extent that it does not relate thereto,
shall promptly deliver same to Seller.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume Seller's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed on Section 2.01 of the Disclosure Statement
and under the Leases and such other obligations listed in Section 2.09 of the
Disclosure Statement, in each case if but only if they are assigned or
transferred to Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of Seller or any Owner, under or in connection with any contract
between Seller or any Owner and any third party or otherwise. Furthermore,
except as specifically set forth in Section 2.09 above, Apple expressly
disclaims the assumption of any liability of any type whatsoever of Seller or
any Owner or in connection with any of Seller's or any Owner's assets or
business operations, including without limitation (i) any and all Tax
liabilities accruing on or before the Closing in connection with any Acquired
Assets or otherwise, (ii) any and all liabilities arising from or under any
Environmental Laws, (iii) any and all liabilities in connection with any claim
by any Person claiming to have suffered any environmental damage or harm of any
type, including any actual or alleged damage or harm to groundwater, surface
water, well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance, (iv) any and all employment or personnel-related
liabilities whatsoever of Seller or any Owner, including, but not limited to,
any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), Title I, Part 6 of ERISA liability,
Occupational Safety and Health Act of 1972, as amended ("OSHA") liability,
liability for disabled individuals, workers' compensation liability, ERISA
plans, or ERISA plan obligations or liability, Federal Workers Adjustment and
Retraining Notification Act liability, sick pay, vacation accruals, or similar
matters, any profit sharing plan or any liability thereunder, any pension plan
or liability thereunder, any welfare benefit plan or any liability thereunder,
or liability for any claims alleging illegal discrimination of any type, (v) any
indebtedness of Seller or any Owner, and (vi) any liability or obligation
(contingent or otherwise) of Seller or any Owner arising out of any claim,
litigation or proceeding threatened or pending on or before the IPO Pricing Date
or out of any claim, litigation or proceeding threatened or initiated after the
IPO Pricing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the IPO Pricing
Date, or any condition caused by any act or omission occurring prior to the IPO
Pricing Date, or any product sold or manufactured by the Seller or any Owner or
any service provided by Seller or any Owner (including all product liability and
warranty claims and product returns with respect thereto).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OWNER
Section 3.01 BY EACH OWNER. Each Owner represents and warrants to
Apple that, as applied solely to himself, all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the date of the
Closing and the IPO Closing Date, true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF
THE SELLER AND THE OWNERS
Section 4.01 BY THE SELLER AND EACH OWNER. The Seller and each
Owner, jointly and severally represent and warrant to, and agree with, Apple
that, except as set forth in Section 4.01 of the Disclosure Statement all the
following representations and warranties in this Article IV are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) the Organization State of each of the Seller and the Seller
Subsidiaries is the State of Connecticut, and each of the Seller and the
Seller Subsidiaries (i) is either (A) a corporation duly organized,
validly existing and in good standing, or (B) a partnership duly formed
and validly existing, under the laws of that State, (ii) has all requisite
corporate or partnership power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation or partnership in all jurisdictions
(other than the State of Connecticut) in which it owns or leases property
or in which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) (i)(A) if Seller is a corporation, the authorized Capital Stock
of the Seller is comprised of 1,000 shares of Seller Common Stock, of
which 100 shares have been issued and are now outstanding and no shares
are held by the Seller as treasury shares or (B) if Seller is a
partnership, all of the partnership interests authorized to be issued
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in the Charter Documents are listed in Section 3.02 of the Disclosure
Statement, and (ii) no outstanding Derivative Securities of the Seller
exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Seller than the Seller reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Seller, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) Intentionally Left Blank;
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to;
(f) (i) the capitalization of the Orthodontic Entity shall be
incompliance with the requirements of the applicable regulations of the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock"), are, or will be, held in
treasury; (ii) except as set forth in Section 4.01 of the Disclosure
Statement, the Owners own, or will own, all of the issued and outstanding
shares of Orthodontic Entity Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements; (iii) each outstanding share of Orthodontic
Entity Common Stock has been legally and validly issued and is, or will
be, fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) (i) each Owner will be acquiring the shares of Apple Common
Stock to be issued pursuant to Section 2.04 to him solely for his account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) each Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii)
each Owner is either an "accredited investor" as defined in Securities Act
Rule 501(a) or, if such Owner is not such an investor, Section 4.01(e) of
the Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) such Owner (A) is able to bear the economic risk of
an investment in the Apple Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment, and
(C) either (1) has such knowledge and experience in financial and business
matters that such Owner is
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capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) such Owner's Purchaser Representative has
had an adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions or such Owner's Purchaser Representative has
asked all questions of the nature described in the immediately preceding
clause, and all those questions have been answered to his satisfaction and
the satisfaction of his Purchaser Representative.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Seller
and each Owner that all the following representations and warranties in this
Article V are as of the date of this Agreement, and will be on the date of the
Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing
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will not include the completion of either the Acquisition or the delivery of a
bill of sale or the Acquisition Consideration pursuant to Section 2.04. Instead,
on the IPO Closing Date, all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of a bill of sale in exchange for the Acquisition Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Acquisition Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND
EACH OWNER. The obligations of the Seller and each Owner, with respect to the
actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by such Seller and
such Owner pursuant to Section 11.05, of all the conditions set forth in
Sections 7.02(a) and 7.03. The obligations of the Seller and each Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: (i) the
Seller shall have delivered to Apple copies of the articles of formation, each
as amended to the date of the Closing and certified by the Secretary of State of
the State of Connecticut as of a Current Date, of the Seller and each Seller
Subsidiary; and (ii) any of the conditions set forth herein.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date, or
waiver by Apple pursuant to Section 11.05, of the following conditions: (i) each
Owner Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; (ii)
any of the conditions set forth herein; and (iii) delivery to Apple of a bill of
sale and deeds, assignments and any other necessary instruments, satisfactory in
form and content and approved prior to Closing by Apple, conveying all the
Purchased Assets to Apple;
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY OTHER THAN THE SELLER. From and after the
IPO Closing Date, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Seller) will comply with each covenant for which
provision is made in Article VIII of the
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Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Paul H. Rigali, D.D.S.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Seller and each Owner agree,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) directly or indirectly establish, operate or provide
orthodontist services at any orthodontic office, clinic or other facility
providing services similar to those provided by the Orthodontic Entity or
engage or participate in or finance any business which engages in direct
competition with the business being conducted by Apple, in either case,
anywhere within a radius of 20 miles of each location in which any of the
Seller or the Seller Subsidiaries was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Seller, any Seller Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Seller, any Seller
Subsidiary or Apple, provided that each Owner may call on and hire any of
his Immediate Family Members;
(c) call on any Person that at that time is a customer of the
Seller, any Seller Subsidiary or Apple within the Territory, (i) for the
purpose of soliciting or selling any product or service in competition
with the Seller, any Seller Subsidiary or Apple within the Territory and
(ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, Seller or any Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by each Owner pursuant to Section 2.04 which equals 1% of that Partner's Pro
Rata Share of the Transaction Value will represent, and be received as,
consideration for that Owner's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by an Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, each Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against such Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owners in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Owner, the parties hereto, including that Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to that Owner and any other Owner similarly situated.
Section 10.05 [INTENTIONALLY DELETED].
Section 10.06 MATERIALITY. The Seller and each Owner, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), each Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by Owner pursuant to
Section 2.04 to any of that Owner's Related Persons or employees who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Owner
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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(b) Each Owner (i) acknowledges that the shares of Apple Common
Stock to be delivered to Seller pursuant to Section 2.04 have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold without compliance with the Securities Act and (ii) covenants that
none of the shares of Apple Common Stock issued to Seller pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Owner will bear any legend required by the
securities or blue sky laws of the state in which that Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, each Owner
represents and warrants to Apple that such Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by such Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES . This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Seller. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided expressly herein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among each Owner, the Seller and Apple and supersede all prior
agreements and understandings, both written and oral, relating to the subject
matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Seller and Apple; provided, however, that no such amendment, modification,
supplement or waiver will
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be effective unless it is signed by each Owner affected thereby to the extent
that it (a) changes the several nature of that Owner's representations and
warranties (to the extent they are not already joint and several as provided in
Sections 4.01 and 11.03), (b) waives the consummation of the IPO as a condition
to consummation of the Acquisition or (c) amends or waives this sentence. The
waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Seller, respectively, will each pay
their, and their Representatives' fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Seller will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Seller or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Seller and each Owner incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Seller terminates this Agreement otherwise than as
permitted by Article XII, the Seller will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Seller's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that neither the Seller nor any Owner shall be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of an Owner. The Seller will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition,
Seller will pay all Taxes due upon receipt of the consideration payable to
Seller pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to an Owner, addressed to them at their address set
forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Seller, addressed to it at:
Paul H. Rigali, D.D.S., P.C.
44 Fair Street
Wallingford, Connecticut 06492
Attn: Paul H. Rigali, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Leontire & Shub
66 Long Wharf
Boston, Massachusetts 02110
Attn: Mark Shub, Esq.
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later;
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nor shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Seller acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Seller, each Owner or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that Apple will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Seller and each Owner to enter into this Agreement has been or will be made
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Apple or the IPO.
The Underwriter shall have no obligation to Seller or with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Seller;
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(ii) by the Seller, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date; or
(iii) by the Seller, on the one hand, or by Apple, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein.
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Seller if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief Financial
Officer
PAUL RIGALI, D.D.S., P.C.
By: /s/ Paul H. Rigali, D.D.S.
Paul H. Rigali, D.D.S.
President
OWNER:
/s/ Paul H. Rigali, D.D.S.
Paul H. Rigali, D.D.S.
20
EXHIBIT 2.23
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
CARL P. ROY, D.D.S., M.S., P.C.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 13
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ARTICLE XI. GENERAL PROVISIONS........................................ 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Carl P. Roy, D.D.S., M.S., P.C., a Virginia professional
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder"). This Agreement consists
of the Agreement and Plan of Reorganization set forth below and a separate
document of Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Virginia Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Carl P. Roy, D.D.S., M.S., P.C., a Virginia
professional corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Charles E.
Payne, Esq.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Virginia professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Carl P. Roy, D.D.S., M.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Virginia.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving
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Corporation, and those persons will hold the office of director of the Surviving
Corporation subject to the provisions of the applicable laws of the State of
Delaware and the Charter Documents of the Surviving Corporation, and (f) the
officers of Apple immediately prior to the Effective Time will be the respective
officers of the Surviving Corporation, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of 13.1-722 et seq. of the BCA, it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under 13.1-722 et seq. of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
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(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
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arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
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OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Virginia, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
Virginia) in which it owns or leases property or in which the carrying on
of its business as now conducted so requires except where the failure to
be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Virginia; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other
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Stockholders in violation of the preemptive rights the BCA affords the
acknowledging Stockholder and (2) releases all claims of every kind the
acknowledging Stockholder has or might have against the Company and each
other Stockholder as a result of those sales; and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Virginia), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as Apple shall specify by written notice to Robert J.
Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date,
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the Certificates of Merger will become effective pursuant to Section 2.02, and
all transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Virginia as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
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Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Carl P. Roy, D.D.S., M.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 20 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
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Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted
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Period") (or if the two-year "holding" period for restricted securities under
Rule 144 under the Securities Act is reduced by the SEC, the Restricted Period
will be correspondingly reduced), no Stockholder voluntarily will, except
pursuant to and in accordance with the applicable provisions of the Registration
Rights Agreement: (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (A) any shares of Apple Common Stock
received by any Stockholder in the Merger or (B) any interest in (including any
option to buy or sell) any of those shares of Apple Common Stock, in whole or in
part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by a Stockholder pursuant
to Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the Apple Common Stock delivered to each Stockholder
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as Apple may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of
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except after full compliance with all the applicable provisions of the
Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the
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terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Carl P. Roy, D.D.S., M.S., P.C.
4310 Holland Road
Virginia Beach, VA 23452
Attn: Carl P. Roy
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Charles E. Payne, Esq.
999 Waterside Drive
Norfolk, VA 23510
Attn: Charles E. Payne, Esq.
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability
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of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
17
<PAGE>
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Virginia, but before the IPO has been consummated, Apple will take
all actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Virginia in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
18
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief Financial
Officer
CARL P. ROY, D.D.S., M.S., P.C.
By: /s/ Carl P. Roy, D.D.S., M.S.
Carl P. Roy, D.D.S., M.S.
President
STOCKHOLDERS:
/s/ Carl P. Roy, D.D.S., M.S.
Carl P. Roy, D.D.S., M.S.
19
EXHIBIT 2.24
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 27, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
BUDD RUBIN, D.D.S., M.S., INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 5
Section 2.03 Certain Effects of the Merger........................... 5
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 6
Section 2.06 Fractional Shares....................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 7
Section 3.01 By Each Stockholder..................................... 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS....................... 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 13
Section 10.06 Materiality............................................ 13
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ARTICLE XI. GENERAL PROVISIONS........................................ 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 18
ii
<PAGE>
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 27, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Budd Rubin, D.D.S, M.S., Inc., a California corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder"). This Agreement consists of the
Agreement and Plan of Reorganization set forth below and a separate document of
Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the California Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Budd Rubin, D.D.S., M.S., Inc., a California
corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means:
Mr. Gerald M. Chizever
Richman, Lawrence, Mann, Greene, Arbiter & Chizever
9601 Wilshire Blvd.
Beverly Hills, California 90210
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
2
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
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<PAGE>
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Budd Rubin, D.D.S., M.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of California.
4
<PAGE>
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock
5
<PAGE>
which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Sections 1300-1312 of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under Sections 1300-1312 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
6
<PAGE>
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
7
<PAGE>
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of California, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
California) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 200 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) no outstanding Derivative Securities of the Company
exist;
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(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of California; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which
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provision is made in Article VI of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of California), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of California as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect
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to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of the following conditions: (i) the Stockholder
Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; and
(ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Budd Rubin, D.D.S., M.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
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(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
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Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES
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REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY
OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES
UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE
CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
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Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse
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Apple for such fees, costs and expenses in the event such termination follows
the death of the Stockholder. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or Apple or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Budd Rubin, D.D.S., M.S., Inc.
3737 Maraga Avenue, Suite A-303
San Diego, California 92117
Attn: Budd Rubin, D.D.S., M.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Richman, Lawrence, Mann, Greene, Arbiter & Chizever
9601 Wilshire Blvd.
Beverly Hills, California 90201
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Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
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ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in
Section 6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of California, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of California in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the
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breach by that party of any of its representations, warranties or covenants set
forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating Officer
BUDD RUBIN, D.D.S, M.S., INC.
By: /s/ Budd Rubin, D.D.S., M.S.
Printed Name: Budd Rubin, D.D.S., M.S.
Title: President
STOCKHOLDER:
/s/ Budd Rubin, D.D.S., M.S.
Printed Name: Budd Rubin, D.D.S., M.S.
19
EXHIBIT 2.25
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
JOHN DELL SAUTER, D.D.S., M.D.S.
A PROFESSIONAL CORPORATION
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER.......................................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS......................................... 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION......................................................... 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 10
Section 8.01 Of Each Party Other Than the Company.................... 10
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
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ARTICLE XI. GENERAL PROVISIONS........................................ 12
Section 11.01 Treatment of Confidential Information.................. 12
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), John Dell Sauter, D.D.S., M.D.S., A Professional
Corporation, a California professional corporation (the "Company"), and the
persons listed on the signature pages hereof under the caption "Stockholders"
(collectively, the "Stockholders," and each of those persons, individually, a
"Stockholder"). This Agreement consists of the Agreement and Plan of
Reorganization set forth below and a separate document of Uniform Provisions,
which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the California Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means John Dell Sauter, D.D.S., M.D.S., A Professional
Corporation, a California professional corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Buxbaum &
Chakmak, A Law Corporation.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means John Dell Sauter, D.D.S., M.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of California.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving
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Corporation, and those persons will hold the office of director of the Surviving
Corporation subject to the provisions of the applicable laws of the State of
Delaware and the Charter Documents of the Surviving Corporation, and (f) the
officers of Apple immediately prior to the Effective Time will be the respective
officers of the Surviving Corporation, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Sections 1300-1312 of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under Sections 1300-1312 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
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(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
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arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of California, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
California) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
750 shares of Company Common Stock, of which 5 shares have been issued and
are now outstanding and no shares are held by the Company as treasury
shares, and (ii) no outstanding Derivative Securities of the Company
exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of California; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company
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for having and continuing to be, engaged in businesses beyond the purposes
presently set forth in the Company's articles of incorporation; and (B)
(1) acknowledges the Company may have issued and sold Company Common Stock
to one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of California), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as
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Apple shall specify by written notice to Robert J. Syverson. The actions taken
at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of California as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
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ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for John Dell Sauter, D.D.S., M.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party
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hereto agrees that the percentage of the cash portion of the Merger
Consideration to be received by each Stockholder pursuant to Section 2.04 which
equals 1% of that Stockholder's Pro Rata Share of the Transaction Value will
represent, and be received as, consideration for that Stockholder's agreement to
observe the covenants in this Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder
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pursuant to Section 2.04 have not been and, except pursuant to the Registration
Rights Agreement, if applicable, will not be registered under the Securities Act
and therefore may not be resold by that Stockholder without compliance with the
Securities Act and (ii) covenants that none of the shares of Apple Common Stock
issued to that Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all the applicable provisions of the Securities Act
and the rules and regulations of the SEC and applicable state securities laws
and regulations. All certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 will bear the following legend in addition to the
legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several
14
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as provided in Sections 4.01 and 11.03), (b) reduces the amount, or changes the
components, of the Merger Consideration that Stockholder is entitled to receive
pursuant to Section 2.04, as adjusted pursuant to Section 2.05(f), (c) waives
the consummation of the IPO as a condition to consummation of the Merger or (d)
amends or waives this sentence. The waiver of any of the terms and conditions
hereof shall not be construed or interpreted as, or deemed to be, a waiver of
any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their addresses
set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
John Dell Sauter, D.D.S., M.D.S., A Professional
Corporation 1330 San Bernadino Road (Suite I)
Upland, California 91786
Attn: John Dell Sauter, D.D.S., M.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Buxbaum & Chakmak, A Law Corporation
414 Yale Avenue, Suite K
Claremont, California 91711
Attn: David A. Buxbaum
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
16
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Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
17
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(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of California, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of California in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
18
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
JOHN DELL SAUTER, D.D.S., M.D.S., A
PROFESSIONAL CORPORATION
By: /s/ John Dell Sauter, D.D.S., M.D.S.
John Dell Sauter, D.D.S., M.D.S.
President
STOCKHOLDERS:
/s/ John Dell Sauter, D.D.S., M.D.S.
John Dell Sauter, D.D.S., M.D.S.
19
EXHIBIT 2.26
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
DONALD D. SCHMITZ, D.D.S., M.S., LTD.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ii
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Donald D. Schmitz, D.D.S., M.S., Ltd., an Arizona
professional corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Arizona Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Donald D. Schmitz, D.D.S., M.S., Ltd., an Arizona
professional corporation.
"Company Common Stock" means the common stock, par value $10.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Dan O'Connell.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Arizona professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Donald D. Schmitz.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Arizona.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Chapter 13 of the BCA, it being intended and agreed that any holder of those
shares shall have in consideration for the cancellation thereof only the rights,
if any, afforded to that holder under Chapter 13 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
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Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Arizona, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Arizona)
in which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
20,000 shares of Company Common Stock, of which 890 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Arizona; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Arizona), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant
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to Section 2.05 and (iii) satisfy the document delivery requirements to which
the obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Arizona as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Donald D. Schmitz.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
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GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This
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Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Required Stockholders, the Company and Apple;
provided, however, that no such amendment, modification, supplement or waiver
will be effective unless it is signed by each Stockholder affected thereby to
the extent that it (a) changes the several nature of that Stockholder's
representations and warranties (to the extent they are not already joint and
several as provided in Sections 4.01 and 11.03), (b) reduces the amount, or
changes the components, of the Merger Consideration that Stockholder is entitled
to receive pursuant to Section 2.04, as adjusted pursuant to Section 2.05(f),
(c) waives the consummation of the IPO as a condition to consummation of the
Merger or (d) amends or waives this sentence. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at
15
<PAGE>
the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Donald D. Schmitz, D.D.S., M.S., Ltd.
541 Wetmore Road
Tucson, Arizona 85705
Attn: Dr. Donald D. Schmitz
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Dan O'Connell
6245 E. Broadway #510
Tucson, Arizona 85711
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
16
<PAGE>
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to
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<PAGE>
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Arizona, but before the IPO has been consummated, Apple will take
all actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Arizona in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
DONALD D. SCHMITZ, D.D.S., M.S., LTD.
By: /s/ Donald D. Schmitz, D.D.S., M.S.
Printed Name: Donald D. Schmitz, D.D.S.,
M.S.
Title: President
STOCKHOLDERS:
/s/ Donald D. Schmitz, D.D.S., M.S.
Printed Name: Donald D. Schmitz, D.D.S.,
M.S.
19
EXHIBIT 2.27
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
DR. CHARLES L. SCHNIBBEN, LTD.
(D/B/A ILLINOIS ORTHODONTIC CENTERS)
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ii
<PAGE>
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Dr. Charles L. Schnibben, Ltd., an Illinois corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder"). This Agreement consists of the
Agreement and Plan of Reorganization set forth below and a separate document of
Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Illinois Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Charles L. Schnibben, Ltd., an Illinois corporation.
"Company Common Stock" means the common stock, no par value per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Mr. John Ewart,
Esq.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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<PAGE>
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Illinois professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Charles L. Schnibben.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Illinois.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
4
<PAGE>
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of 5/11.65 and 5/11.70 of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under 5/11.65 and 5/11.70 of the
BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
5
<PAGE>
Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
6
<PAGE>
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
7
<PAGE>
true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Illinois, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
Illinois) in which it owns or leases property or in which the carrying on
of its business as now conducted so requires except where the failure to
be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
50,000 shares of Company Common Stock, of which 100 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Illinois; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Illinois), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant
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to Section 2.05 and (iii) satisfy the document delivery requirements to which
the obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Illinois as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Charles L. Schnibben, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of ____ miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE
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CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Stockholders, the Company and Apple and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by the Required Stockholders, the
Company and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Stockholder
affected thereby to the extent that it (a) changes the several nature of that
Stockholder's representations and warranties (to the extent they are not already
joint and several as provided in Sections 4.01 and 11.03), (b) reduces the
amount, or changes the components, of the Merger Consideration that Stockholder
is entitled to receive pursuant to Section 2.04, as adjusted pursuant to Section
2.05(f), (c) waives the consummation of the IPO as a condition to consummation
of the Merger or (d) amends or waives this sentence. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close
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of business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Charles L. Schnibben, Ltd.
18 Heritage
St. Andrews Place
Mattoon, Illinois 61938
Attn: Charles L. Schnibben, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jeff Schnibben, Attorney at Law
80 Broadway, Suite 101
Mattoon, Illinois 61938
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any
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such right, power or remedy, nor shall it be construed, deemed or interpreted as
a waiver of or acquiescence in any such breach or default, or of any similar
breach or default occurring later; nor shall any waiver of any single breach or
default be construed, deemed or interpreted as a waiver of any other breach or
default hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
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(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Illinois, but before the IPO has been consummated, Apple will take
all actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Illinois in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief Financial
Officer
CHARLES L. SCHNIBBEN, LTD.
By: /s/ Charles L. Schnibben, D.D.S.
Printed Name: Charles L. Schnibben, D.D.S.
Title: President
STOCKHOLDERS:
/s/ Charles L. Schnibben, D.D.S.
Printed Name: Charles L. Schnibben, D.D.S.
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EXHIBIT 2.28
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
DARRELL G. SMITH, D.D.S.,
A PROFESSIONAL CORPORATION
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 10
Section 8.01 Of Each Party Other Than the Company.................... 10
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
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ARTICLE XI. GENERAL PROVISIONS........................................ 12
Section 11.01 Treatment of Confidential Information.................. 12
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Darrell G. Smith, D.D.S., A Professional Corporation, a
Utah professional corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Utah Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Darrell G. Smith, D.D.S., a Professional
Corporation, a Utah professional corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Van Cott &
Bagley.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Utah professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Darrell G. Smith, D.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Utah.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving
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Corporation, and those persons will hold the office of director of the Surviving
Corporation subject to the provisions of the applicable laws of the State of
Delaware and the Charter Documents of the Surviving Corporation, and (f) the
officers of Apple immediately prior to the Effective Time will be the respective
officers of the Surviving Corporation, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Sections 16-10a-1301 - 1331 it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under Sections 16-10a-1301 - 1331 of the
BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
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(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
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<PAGE>
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Utah, and each of the Company and the Company
Subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Utah) in
which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
50,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Utah; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company
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for having and continuing to be, engaged in businesses beyond the purposes
presently set forth in the Company's articles of incorporation; and (B)
(1) acknowledges the Company may have issued and sold Company Common Stock
to one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Utah), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as
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Apple shall specify by written notice to Robert J. Syverson. The actions taken
at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Utah as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
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ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Darrell G. Smith, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 20 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received
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by each Stockholder pursuant to Section 2.04 which equals 1% of that
Stockholder's Pro Rata Share of the Transaction Value will represent, and be
received as, consideration for that Stockholder's agreement to observe the
covenants in this Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform
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Provisions (the text of which Section hereby is incorporated herein by this
reference) to be performed or observed by that party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each
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Stockholder affected thereby to the extent that it (a) changes the several
nature of that Stockholder's representations and warranties (to the extent they
are not already joint and several as provided in Sections 4.01 and 11.03), (b)
reduces the amount, or changes the components, of the Merger Consideration that
Stockholder is entitled to receive pursuant to Section 2.04, as adjusted
pursuant to Section 2.05(f), (c) waives the consummation of the IPO as a
condition to consummation of the Merger or (d) amends or waives this sentence.
The waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
15
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Darrell G. Smith, D.D.S., A Professional Corporation
4902 South 1900 West
Roy, Utah 84067
Attn: Darrell G. Smith, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Van Cott & Bagley
---------------------------
---------------------------
---------------------------
Attn: Reed Topham
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
16
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Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
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(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Utah, but before the IPO has been consummated, Apple will take all
actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Utah in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
18
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
DARRELL G. SMITH, D.D.S., A
PROFESSIONAL CORPORATION
By: /s/ Darrell G. Smith, D.D.S.
Darrell G. Smith, D.D.S.
President
STOCKHOLDER:
/s/ Darrell G. Smith, D.D.S.
Darrell G. Smith, D.D.S.
19
EXHIBIT 2.29
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
RONALD N. SPIEGEL, D.M.D., INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ii
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Ronald N. Spiegel, D.M.D., a Pennsylvania professional
service corporation (the "Company"), and the persons listed on the signature
pages hereof under the caption "Stockholders" (collectively, the "Stockholders,"
and each of those persons, individually, a "Stockholder"). This Agreement
consists of the Agreement and Plan of Reorganization set forth below and a
separate document of Uniform Provisions, which shall be a part hereof for all
purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Pennsylvania Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Ronald N. Spiegel, D.M.D., a Pennsylvania
professional service corporation.
"Company Common Stock" means the common stock, par value $10.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Mark Unatin,
Esq.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Pennsylvania professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Ronald N. Spiegel, D.M.D.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Pennsylvania.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of 1571 et seq. of the BCA, it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under 1571 et seq. of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
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Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Pennsylvania, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
Pennsylvania) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
500 shares of Company Common Stock, of which 100 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) no outstanding Derivative Securities of the Company
exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Pennsylvania; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Pennsylvania), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant
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to Section 2.05 and (iii) satisfy the document delivery requirements to which
the obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Pennsylvania as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Ronald N. Spiegel, D.M.D.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 20 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE
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CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Stockholders, the Company and Apple and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by the Required Stockholders, the
Company and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Stockholder
affected thereby to the extent that it (a) changes the several nature of that
Stockholder's representations and warranties (to the extent they are not already
joint and several as provided in Sections 4.01 and 11.03), (b) reduces the
amount, or changes the components, of the Merger Consideration that Stockholder
is entitled to receive pursuant to Section 2.04, as adjusted pursuant to Section
2.05(f), (c) waives the consummation of the IPO as a condition to consummation
of the Merger or (d) amends or waives this sentence. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close
15
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of business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Ronald N. Spiegel, D.M.D.
4880 Library Road
Bethel Park, PA 15102
Attn: Ronald N. Spiegel, D.M.D.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Mark Unatin, Esq.
Third Floor, Grant Building
Pittsburgh, PA 15219-2203
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later;
16
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nor shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take
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place at the Closing shall not have been consummated by December 31, 1997,
unless the failure of such transactions to be consummated results from the
willful failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in
Section 6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Pennsylvania, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of Pennsylvania in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
RONALD N. SPIEGEL, D.M.D., INC.
By: /s/ Ronald N. Spiegel, D.M.D.
Printed Name: Ronald N. Spiegel, D.M.D.
Title: President
STOCKHOLDER:
/s/ Ronald N. Spiegel, D.M.D.
Printed Name: Ronald N. Spiegel, D.M.D.
19
EXHIBIT 2.30
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.
AND
THE OWNER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.............. 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.......................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE.................. 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION................................................... 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
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Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.................................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
"Accounts Receivable" has the meaning specified in Section 2.01.
<PAGE>
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means _______________.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
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"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
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(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
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Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any environmental damage or harm
of any type, including any actual or alleged damage or harm to groundwater,
surface water, well water, ground, soil, or the atmosphere, or otherwise
relating to any Hazardous Substance, (iv) any and all employment or
personnel-related liabilities whatsoever of the Owner, including, but not
limited to, any liability under any employment contract, liability for wages or
salary, liability for bonuses or commissions, liability for severance (including
without limitation as a result of this transaction), Title I, Part 6 of ERISA
liability, Occupational Safety and Health Act of 1972, as amended ("OSHA")
liability, liability for disabled individuals, workers' compensation liability,
ERISA plans, or ERISA plan obligations or liability, Federal Workers Adjustment
and Retraining Notification Act liability, sick pay, vacation accruals, or
similar matters, any profit sharing plan or any liability thereunder, any
pension plan or any liability thereunder, any welfare benefit plan or any
liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the
6
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Owner or any service provided by the Owner (including all product liability and
warranty claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any
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of those shares in connection with any distribution; (ii) the Owner is not
a party to any agreement or other arrangement for the disposition of any
shares of Apple Common Stock other than this Agreement and the
Registration Rights Agreement; (iii) the Owner is either an "accredited
investor" as defined in Securities Act Rule 501(a) or, if the Owner is not
such an investor, Section 4.01(e) of the Disclosure Statement sets forth
the name and address of his Purchaser Representative; (iv) the Owner (A)
is able to bear the economic risk of an investment in the Apple Common
Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, and (C) either (1) has such knowledge and
experience in financial and business matters that the Owner is capable of
evaluating the merits and risks of the proposed investment in the Apple
Common Stock, or (2) the Owner's Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions or the Owner's Purchaser Representative has
asked all questions of the nature described in the immediately preceding
clause, and all those questions have been answered to his satisfaction and
the satisfaction of his Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of Orthodontic Entity Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements; (iii) each outstanding share of Orthodontic
Entity Common Stock has been, or will be, legally and validly issued and
is, or will be, fully paid and nonassessable; (iv) there exist no options,
warrants, subscriptions or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of the Orthodontic Entity; and (v) no shares of capital sock of
the Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the
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representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the
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satisfaction on that date of the following conditions: (i) each of the Service
Agreement and the Stockholder Employment Agreement then shall be in full force
and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for which provision is made in Article VIII of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
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being "Apple" for purposes of this Article X) within a radius of 10 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Acquisition Consideration to be received
by the Owner pursuant to Section 2.04 which equals 1% of the Transaction Value
will represent, and be received as, consideration for the Owner's agreement to
observe the covenants in this Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
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Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES
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REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY
OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES
UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE
CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
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Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Owner and Apple and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by the Owner and Apple. The waiver
of any of the terms and conditions hereof shall not be construed or interpreted
as, or deemed to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the
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mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
--------------------------
--------------------------
--------------------------
Attn: ____________________
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in
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such manner as to be valid, legal and enforceable but so as to most nearly
retain the intent of the parties hereto as expressed herein, and if such a
modification is not possible, that provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
OWNER:
/s/ Michael C. Theurer, D.D.S.
Michael C. Theurer, D.D.S.
18
EXHIBIT 2.31
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
THOMAS A. TILLER, D.D.S., INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I.
DEFINITIONS.............................. 1
Section 1.01 CERTAIN DEFINED TERMS................................... 1
ARTICLE II.
THE MERGER AND RELATED MATTERS..................... 4
Section 2.01 CERTIFICATE OF MERGER................................... 4
Section 2.02 THE EFFECTIVE TIME...................................... 4
Section 2.03 CERTAIN EFFECTS OF THE MERGER........................... 4
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK................... 5
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT.......................... 5
Section 2.06 FRACTIONAL SHARES....................................... 6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER........... 6
Section 3.01 BY EACH STOCKHOLDER..................................... 6
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS.................... 8
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER..................... 8
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE................ 9
Section 5.01 BY APPLE................................................ 9
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME............... 9
Section 6.01 OF EACH PARTY........................................... 9
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION......... 9
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS...................... 9
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ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME................. 10
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY.................... 10
ARTICLE IX.
INDEMNIFICATION............................ 11
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS.................. 11
ARTICLE X.
LIMITATIONS ON COMPETITION....................... 11
Section 10.01 PROHIBITED ACTIVITIES.................................. 11
Section 10.02 DAMAGES................................................ 12
Section 10.03 REASONABLE RESTRAINT................................... 12
Section 10.04 SEVERABILITY; REFORMATION.............................. 12
Section 10.05 INDEPENDENT COVENANT................................... 12
Section 10.06 MATERIALITY............................................ 12
ARTICLE XI.
GENERAL PROVISIONS........................... 13
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION.................. 13
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK......... 13
Section 11.03 BROKERS AND AGENTS..................................... 14
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES............... 14
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS................... 14
Section 11.06 COUNTERPARTS........................................... 15
Section 11.07 EXPENSES............................................... 15
Section 11.08 NOTICES................................................ 15
Section 11.09 GOVERNING LAW.......................................... 16
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES........................ 16
Section 11.11 TIME................................................... 17
Section 11.12 REFORMATION AND SEVERABILITY........................... 17
Section 11.13 REMEDIES CUMULATIVE.................................... 17
Section 11.14 RESPECTING THE IPO..................................... 17
ARTICLE XII.
TERMINATION.............................. 17
Section 12.01 TERMINATION OF THIS AGREEMENT.......................... 17
Section 12.02 LIABILITIES IN EVENT OF TERMINATION.................... 18
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Thomas A. Tiller, D.D.S., Inc., a Texas professional
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder"). This Agreement consists
of the Agreement and Plan of Reorganization set forth below and a separate
document of Uniform Provisions, which shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Texas Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Thomas A. Tiller, D.D.S., Inc., a Texas professional
corporation.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Barry W.
Adkins.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at November 30, 1996 and (b) the Current Balance
Sheet and the related unaudited consolidated statements of income
(operations), cash flows and stockholders' equity for the nine-month
period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Texas professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Thomas A. Tiller, D.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Articles 5.11 and 5.12 of the BCA, it being intended and agreed that any
holder of those shares shall have in consideration for the cancellation thereof
only the rights, if any, afforded to that holder under Article 5.12 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
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Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Texas, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Texas)
in which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
300,000 shares of Company Common Stock, of which 2,000 shares have been
issued and are now outstanding and 4,000 shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Texas; and (ii) each
Stockholder shall have executed and delivered to the Company, in form and
substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Texas), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section
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2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Texas as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Shares of the
Transaction Value is 100% for Thomas A. Tiller, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 50 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
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GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This
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Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Required Stockholders, the Company and Apple;
provided, however, that no such amendment, modification, supplement or waiver
will be effective unless it is signed by each Stockholder affected thereby to
the extent that it (a) changes the several nature of that Stockholder's
representations and warranties (to the extent they are not already joint and
several as provided in Sections 4.01 and 11.03), (b) reduces the amount, or
changes the components, of the Merger Consideration that Stockholder is entitled
to receive pursuant to Section 2.04, as adjusted pursuant to Section 2.05(f),
(c) waives the consummation of the IPO as a condition to consummation of the
Merger or (d) amends or waives this sentence. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at
15
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the address of such party set forth below (or at such other address as such
party may designate by written notice to all other parties in accordance
herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Thomas A. Tiller, D.D.S., Inc.
4818 Holly Road
Corpus Christi, Texas 78411
Attn: Thomas A. Tiller, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Barry W. Adkins
1200 Smith Street, Suite 1400
Houston, Texas 77002-4310
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
16
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Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to
17
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terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Texas, but before the IPO has been consummated, Apple will take all
actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Texas in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
THOMAS A. TILLER, D.D.S., INC.
By: /s/ Thomas A. Tiller, D.D.S.
Printed Name: Thomas A. Tiller, D.D.S.
Title: President
STOCKHOLDER:
/s/ Thomas A. Tiller, D.D.S.
Printed Name: Thomas A. Tiller, D.D.S.
19
EXHIBIT 2.32
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
JACK D. UTLEY, JR., D.M.D., P.C.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ii
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Jack D. Utley, Jr., D.M.D., P.C., a Pennsylvania
professional corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Pennsylvania Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Jack D. Utley, Jr., D.M.D., P.C., a Pennsylvania
professional corporation.
"Company Common Stock" means the common stock, par value $10.00 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means
___________________.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
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"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Pennsylvania professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Jack D. Utley, Jr., D.M.D.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
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"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Pennsylvania.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
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Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of 1571 et seq. of the BCA, it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under 1571 et seq. of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple
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Common Stock issuable in the Merger will be deemed for all purposes to have been
issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
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(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are
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true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Pennsylvania, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
Pennsylvania) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
____________ shares of Company Common Stock, of which 100 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
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articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of Pennsylvania; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of Pennsylvania), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant
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to Section 2.05 and (iii) satisfy the document delivery requirements to which
the obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Jackson & Walker, L.L.P., 42nd Floor, 1100 Louisiana, Houston,
Texas at 10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as Apple shall specify by written notice to Robert J. Syverson. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificates of Merger will
become effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing Date,
including the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Pennsylvania as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of
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the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) to be performed or observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Jack D. Utley, Jr., D.M.D.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
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Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD
WILL BE
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CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Stockholders, the Company and Apple and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by the Required Stockholders, the
Company and Apple; provided, however, that no such amendment, modification,
supplement or waiver will be effective unless it is signed by each Stockholder
affected thereby to the extent that it (a) changes the several nature of that
Stockholder's representations and warranties (to the extent they are not already
joint and several as provided in Sections 4.01 and 11.03), (b) reduces the
amount, or changes the components, of the Merger Consideration that Stockholder
is entitled to receive pursuant to Section 2.04, as adjusted pursuant to Section
2.05(f), (c) waives the consummation of the IPO as a condition to consummation
of the Merger or (d) amends or waives this sentence. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or Apple or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close
15
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of business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Jack D. Utley, Jr., D.M.D., P.C.
3900 Zuck Road
Erie, PA 16506
Attn: Jack D. Utley, Jr., D.M.D.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
------------------------
------------------------
------------------------
Attn:___________________
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
16
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acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
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(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Pennsylvania, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of Pennsylvania in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[signatures appear on the following page]
18
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
JACK D. UTLEY, JR., D.M.D., P.C.
By: /s/ Jack D. Utley, Jr., D.M.D.
Printed Name: Jack D. Utley, Jr., D.M.D.
Title: President
STOCKHOLDER:
/s/ Jack D. Utley, Jr., D.M.D.
Printed Name: Jack D. Utley, Jr., D.M.D.
19
EXHIBIT 2.33
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
JOHN G. VONDRAK APPLE ORTHODONTIX, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS..................................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS................................. 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 4
Section 2.03 Certain Effects of the Merger........................... 4
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 5
Section 2.06 Fractional Shares....................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 6
Section 3.01 By Each Stockholder..................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE......................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME...................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION...................................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
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Section 10.06 Materiality............................................ 13
ARTICLE XI. GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 18
ii
<PAGE>
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), John G. Vondrak Apple Orthodontix, Inc., a Texas
professional corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the Texas Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means John G. Vondrak Apple Orthodontix, Inc., a Texas
professional corporation.
"Company Common Stock" means the common stock, par value $0.10 per
share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means Adrienne Randle
Bond of Bond & Lee, L.L.P.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
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"Dissenting Shares" has the meaning specified in Section 2.04.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the Texas professional corporation or
association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means John G. Vondrak, D.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
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"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents
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of Apple then in effect will become and thereafter remain (until changed in
accordance with (i) the applicable law (in the case of the articles of
incorporation) or (ii) its terms (in the case of the bylaws)) the Charter
Documents of the Surviving Corporation, (e) the board of directors of Apple
immediately prior to the Effective Time will be the board of directors of the
Surviving Corporation, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Delaware and the Charter Documents of the Surviving Corporation, and
(f) the officers of Apple immediately prior to the Effective Time will be the
respective officers of the Surviving Corporation, subject to the provisions of
the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Articles 5.11 and 5.12 of the BCA, it being intended and agreed that any
holder of those shares shall have in consideration for the cancellation thereof
only the rights, if any, afforded to that holder under Article 5.11 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced
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pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of Apple Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. All shares of Apple Common Stock issuable in the
Merger will be deemed for all purposes to have been issued by Apple at the
Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or
6
<PAGE>
supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
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(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of Texas, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Texas)
in which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material Adverse
Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
100,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to
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engage (if the applicable Organization State laws governing the Company so
permit) and (2) abolish the preemptive rights of holders of Company Common
Stock and (B) the articles reflecting these amendments shall have been
duly filed with and accepted by the Secretary of State of the State of
Texas; and (ii) each Stockholder shall have executed and delivered to the
Company, in form and substance satisfactory to Apple, a written instrument
that: (A) acknowledges the Company is and has, and releases the Company
for having and continuing to be, engaged in businesses beyond the purposes
presently set forth in the Company's articles of incorporation; and (B)
(1) acknowledges the Company may have issued and sold Company Common Stock
to one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of
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State of the State of Texas), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of Texas as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Stockholder Employment Agreement and the Service Agreement
in substantially the form attached hereto as Exhibit 7.01(d), then shall be in
full force and effect; and (ii) all the conditions set forth in Sections 7.02(b)
and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
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ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for John G. Vondrak, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 50 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in
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competition with the Company, any Company Subsidiary or Apple within the
Territory and (ii) with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder
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is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
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OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON __________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO
CLOSING DATE] (THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING"
PERIOD FOR RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT
OF 1933 IS REDUCED BY THE SECURITIES AND EXCHANGE COMMISSION, THE
RESTRICTED PERIOD WILL BE CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST
OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor
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trustees of that trust). Neither this Agreement nor any other Transaction
Document is intended, or shall be construed, deemed or interpreted, to confer on
any Person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as provided in Section 6.05(b) or 11.14, in Article IX or as
otherwise provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse Apple for such fees, costs and expenses in the event such
termination follows the death of the Stockholder. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company
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or Apple or the Surviving Corporation, will pay all Taxes due upon receipt of
the consideration payable to that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
John G. Vondrak Apple Orthodontix, Inc.
5425 S.P.I.D., #128
Corpus Christi, Texas 78411
Attn: John G. Vondrak, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Bond & Lee, L.L.P.
1021 Main, Suite 1220
Houston, Texas 77002
Attn: Adrienne Randle Bond
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
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OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
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ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of Texas, but before the IPO has been consummated, Apple will take all
actions that Counsel for the Company and the Stockholders advises Apple are
required by the applicable laws of the State of Texas in order to rescind the
Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto
18
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except (a) as provided in Section 11.07 and (b) to the extent that such
liability is based on the breach by that party of any of its representations,
warranties or covenants set forth in this Agreement.
[signatures appear on the following page]
19
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Michael W. Harlan
Printed Name: Michael W. Harlan
Title: Vice President and Chief Financial
Officer
JOHN G. VONDRAK APPLE
ORTHODONTIX, INC.
By: /s/ John G. Vondrak, D.D.S.
Printed Name: John G. Vondrak, D.D.S.
Title: President
STOCKHOLDERS:
John G. Vondrak, D.D.S.
Printed Name: John G. Vondrak, D.D.S.
20
EXHIBIT 2.34
CONTRIBUTION AGREEMENT
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.
AND
THE OWNER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II THE ACQUISITION, CONTRIBUTION AND DELIVERY;
OBLIGATIONS ASSUMED...................................... 4
Section 2.01 Acquired Assets and Excluded Assets..................... 4
Section 2.02 The Closing............................................. 5
Section 2.03 [INTENTIONALLY LEFT BLANK].............................. 5
Section 2.04 Acquisition Price....................................... 6
Section 2.05 Allocation Reporting.................................... 6
Section 2.06 Fractional Shares....................................... 6
Section 2.07 Accounts Receivable..................................... 6
Section 2.08 Mail Received After Closing............................. 6
Section 2.09 Obligations Assumed..................................... 6
Section 2.10 Liabilities and Obligations Not Assumed................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OWNER.............. 7
Section 3.01 By the Owner............................................ 7
ARTICLE IV FURTHER REPRESENTATIONS AND WARRANTIES OF THE
OWNER.......................................................... 7
Section 4.01 By the Owner............................................ 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF APPLE.................. 9
Section 5.01 By Apple................................................ 9
ARTICLE VI COVENANTS EXTENDING TO THE IPO CLOSING DATE.................... 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION................................................... 9
Section 7.01 The Closing and Certain Conditions...................... 9
ARTICLE VIII COVENANTS FOLLOWING THE IPO CLOSING DATE................. 10
Section 8.01 Of Each Party........................................... 10
ARTICLE IX INDEMNIFICATION................................................ 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X LIMITATIONS ON COMPETITION............................... 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
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Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 12
Section 10.06 Materiality............................................ 12
ARTICLE XI GENERAL PROVISIONS............................................. 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 14
Section 11.05 Entire Agreement; Amendment; Waivers................... 14
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 15
Section 11.09 Governing Law.......................................... 16
Section 11.10 Exercise of Rights and Remedies........................ 16
Section 11.11 Time................................................... 16
Section 11.12 Reformation and Severability........................... 16
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII TERMINATION.................................................... 17
Section 12.01 Termination of this Agreement.......................... 17
Section 12.02 Liabilities in Event of Termination.................... 18
ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of
February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware corporation
("Apple"), and the persons listed on the signature page hereof under the caption
"Owner" (collectively, the "Owner"). This Agreement consists of the Contribution
Agreement set forth below and a separate document of Uniform Provisions, which
shall be a part hereof for all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a transaction pursuant to which:
(a) Owner will transfer, assign and deliver to Apple, on the terms
and subject to the conditions set forth herein, substantially all of the
tangible and intangible assets used by Owner in the business (such
business of the Owner being the "Business") of providing orthodontic
services to patients (the "Acquisition");
(b) Apple will acquire the stock, or substantially all of the
assets, of all or some of the orthodontic practices listed in the
accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Business, the "Founding Companies") pursuant to
agreements that are (i) similar to this Agreement and (ii) entered into
among those entities and/or their owners and Apple (collectively, the
"Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The board of directors of Apple and the Owner have approved and
adopted this Agreement, intending to effect a transaction pursuant to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
<PAGE>
"Accounts Receivable" has the meaning specified in Section 2.01.
"Acquired Assets" has the meaning specified in Section 2.01.
"Acquisition" has the meaning specified in the Preliminary Statement
of this Agreement.
"Acquisition Consideration" has the meaning specified in Section
2.04.
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Owner, Apple or any Subsidiary of Apple in
connection with the possible acquisition by any of them of that Entity or
(ii) of which any of them has made an acquisition analysis.
"Business" has the meaning specified in the Preliminary Statement of
this Agreement.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Contracts" has the meaning specified in Section 2.01(d).
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Business and the Owner" means Gerald M. Chizever of
Richman, Lawrence, Mann, Greene, Arbiter & Chizever.
"Current Balance Sheet" means the unaudited balance sheet of the
Business as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Owner herein, (b) it is
confirmed that no exception is taken to that representation and warranty
or (c) additional information is provided with respect to a particular
provision herein or in the Uniform Provisions.
"Excluded Assets" has the meaning specified in Section 2.01.
"Fixed Assets" has the meaning specified in Section 2.01.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Business as at September 30, 1996 and the related
consolidated statements of income (operations), cash flows and
stockholders' equity for the Business' nine-month period ended September
30, 1996 and (b) the Current Balance Sheet and the related unaudited
consolidated statements of income (operations), cash flows and
stockholders' equity for the nine-month period ended on the Current
Balance Sheet Date.
"Inventory" has the meaning specified in Section 2.01.
"Leases" has the meaning specified in Section 2.01.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 4.01.
"OSHA" has the meaning specified in Section 2.10.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Owner" has the meaning specified in the preamble of this Agreement.
"Owner Employment Agreement" means the Employment Agreement to be
entered into as of the IPO Closing Date between the Orthodontic Entity and
the Owner.
"Purchase and Sales Contracts" has the meaning specified in Section
2.01.
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"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
"Retained Receivables" has the meaning specified in Section 2.07.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Closing Date among Apple, the Owner and the Orthodontic
Entity.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Business' gross
revenues (less bad debts) for the 12-month period ended December 31, 1996,
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE ACQUISITION, CONTRIBUTION AND DELIVERY; OBLIGATIONS ASSUMED
Section 2.01 ACQUIRED ASSETS AND EXCLUDED ASSETS. Subject to the
terms and conditions of this Agreement, and on the basis of the representations
and warranties hereinafter set forth, at the Closing, the Owner is transferring,
conveying, assigning and delivering to Apple, and Apple is acquiring from the
Owner, all of the tangible and intangible assets used by the Owner in the
Business (whether or not included below), including the following assets,
properties and rights of the Owner (collectively, the "Acquired Assets"):
(a) all inventories of finished products, work in process, raw
materials, supplies and packing and shipping material (collectively, the
"Inventory");
(b) all accounts receivable of the Owner immediately prior to the
IPO Closing Date (the "Accounts Receivable"), except as described in
Section 2.07;
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(c) all tools, equipment, machinery, dies, furniture, fixtures,
store equipment, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets");
(d) all contracts and agreements listed in Section 2.01 of the
Disclosure Statement under the heading "Contracts" (the "Contracts");
(e) all of the Owner's rights accruing from and after the IPO
Closing Date to each purchase or sales order or other contract, agreement
or commitment for the purchase or sale of Inventory that (i) was entered
into in the ordinary course of business and is unfilled as of the IPO
Closing Date and (ii) is listed in Section 2.01 of the Disclosure
Statement under the heading "Purchase and Sales Contracts" ("Purchase and
Sales Contracts");
(f) all rights of the Owner under express or implied warranties, if
any, from the suppliers of the Owner, manufacturers or others with respect
to the Acquired Assets;
(g) all intellectual property, including patents, trademarks, trade
names, service marks, franchises, copyrights, blueprints, drawings,
computer software and similar items, together with all goodwill associated
therewith or with the Business, including, but not limited to, the Owner's
logo and all corporate, assumed and other names of the Owner, and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof;
(h) the leases of real property listed in Section 2.01 of the
Disclosure Statement under the heading "Leases" (the "Leases");
(i) except as set forth below, deposits and other current assets, a
listing of which appears under the heading "Deposits and Current Assets"
in Section 2.01 of the Disclosure Statement; and
(j) all books, operating and financial records, correspondence,
files, customer and vendor lists and other data used in or relating to the
Business.
Notwithstanding the foregoing, the Acquired Assets shall not include, and Apple
will not acquire, any minute books and stock records of the Owner, any advances
to employees, the Accounts Receivable specified in Section 2.07, or any other
assets listed in Section 2.01 of the Disclosure Statement under the heading
"Excluded Assets" (the "Excluded Assets").
Section 2.02 THE CLOSING. The Closing of the Acquisition will be at
8:00 a.m., eastern daylight or standard time, on the IPO Closing Date.
Section 2.03 [INTENTIONALLY LEFT BLANK].
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Section 2.04 ACQUISITION PRICE. The acquisition price being paid by
Apple at the Closing for the Acquired Assets (the "Acquisition Consideration")
is the amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement.
Section 2.05 ALLOCATION REPORTING. Apple and the Owner agree to
report the allocation of the Acquisition Consideration among the Acquired
Assets, the Service Agreement and the covenant not to compete contained in
Section 10.01 as Apple shall determine. Apple shall advise the Owner of such
determination on or before December 31, 1997.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and the Owner
entitled hereunder to receive a fractional share of Apple Common Stock but for
this Section 2.06 will have the cash portion of the Acquisition Consideration
hereunder reduced in an amount sufficient to enable the issuance of an
additional whole share of Apple Common Stock multiplied by the IPO Price.
Section 2.07 ACCOUNTS RECEIVABLE. The Owner agrees that on and after
the Closing, Apple shall have the right and authority to collect all Accounts
Receivable except those specified in Section 2.07 of the Disclosure Statement,
and, if necessary, to endorse with the name of the Owner any checks received on
account of any such receivables or other items. The Owner will transfer to Apple
any cash or other property which the Owner may receive in respect of such
receivables or other items. As set forth in Section 2.07 of the Disclosure
Statement, certain Accounts Receivable are being retained by the Owner (the
"Retained Receivables"), and the balance of the Accounts Receivable are being
acquired by Apple.
Section 2.08 MAIL RECEIVED AFTER CLOSING. Following the Closing,
Apple may receive and open all mail addressed to the Owner that Apple believes
relates to the Business and, to the extent that such mail and the contents
thereof relate to the Business or the Acquired Assets, deal with the contents
thereof in its discretion.
Section 2.09 OBLIGATIONS ASSUMED. As part of the consideration for
the Acquired Assets, and subject to Section 2.10, Apple shall assume the Owner's
obligations that accrue after the IPO Closing Date under the Contracts and
Purchase and Sale Contracts listed in Section 2.01 of the Disclosure Statement
Leases and such other obligations listed in Section 2.09 of the Disclosure
Statement, in each case if but only if they are assigned or transferred to
Apple.
Section 2.10 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Other than as
specifically set forth in Section 2.09 above, Apple assumes no obligation
whatsoever of the Owner, under or in connection with any contract between the
Owner and any third party or otherwise. Furthermore, except as specifically set
forth in Section 2.09 above, Apple expressly disclaims the assumption of any
liability of any type whatsoever of the Owner or in connection with any of the
Owner's assets or business operations, including without limitation (i) any and
all Tax liabilities accruing on or before the Closing in connection with any
Acquired Assets or otherwise, (ii) any and all liabilities arising from or under
any Environmental Laws, (iii) any and all liabilities in connection with any
claim by any Person claiming to have suffered any
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environmental damage or harm of any type, including any actual or alleged damage
or harm to groundwater, surface water, well water, ground, soil, or the
atmosphere, or otherwise relating to any Hazardous Substance, (iv) any and all
employment or personnel-related liabilities whatsoever of the Owner, including,
but not limited to, any liability under any employment contract, liability for
wages or salary, liability for bonuses or commissions, liability for severance
(including without limitation as a result of this transaction), Title I, Part 6
of ERISA liability, Occupational Safety and Health Act of 1972, as amended
("OSHA") liability, liability for disabled individuals, workers' compensation
liability, ERISA plans, or ERISA plan obligations or liability, Federal Workers
Adjustment and Retraining Notification Act liability, sick pay, vacation
accruals, or similar matters, any profit sharing plan or any liability
thereunder, any pension plan or any liability thereunder, any welfare benefit
plan or any liability thereunder, or liability for any claims alleging illegal
discrimination of any type, (v) any indebtedness of the Owner and (vi) any
liability or obligation (contingent or otherwise) of the Owner arising out of
any claim, litigation or proceeding threatened or pending on or before the IPO
Pricing Date or out of any claim, litigation or proceeding threatened or
initiated after the IPO Pricing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the IPO
Pricing Date, or any condition caused by any act or omission occurring prior to
the IPO Pricing Date, or any product sold or manufactured by the Owner or any
service provided by the Owner (including all product liability and warranty
claims and product returns with respect thereto).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OWNER
Section 3.01 BY THE OWNER. The Owner represents and warrants to
Apple that all the following representations and warranties in this Article III
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV
FURTHER
REPRESENTATIONS AND WARRANTIES
OF THE OWNER
Section 4.01 BY THE OWNER. The Owner represents and warrants to, and
agrees with, Apple that all the following representations and warranties in this
Article IV are as of the
7
<PAGE>
date of this Agreement, and will be, as amended or supplemented pursuant to
Section 6.08, on the date of the Closing and the IPO Closing Date, true and
correct:
(a) [INTENTIONALLY LEFT BLANK];
(b) [INTENTIONALLY LEFT BLANK];
(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Owner than the Owner reasonably could have
expected to obtain in an arm's-length transaction with a Person other than
an Affiliate of the Owner, (ii) the rentals provided for in the Scheduled
Agreements constituting leases do not and will not exceed fair market
rentals of the properties being rented or leased under those Scheduled
Agreements and (iii) the payments provided to be made in the other
Scheduled Agreement do not exceed the fair market value of the services
performed;
(d) [INTENTIONALLY LEFT BLANK];
(e) (i) the Owner will be acquiring the shares of Apple Common Stock
to be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) the Owner is not a party to any agreement or
other arrangement for the disposition of any shares of Apple Common Stock
other than this Agreement and the Registration Rights Agreement; (iii) the
Owner is either an "accredited investor" as defined in Securities Act Rule
501(a) or, if the Owner is not such an investor, Section 4.01(e) of the
Disclosure Statement sets forth the name and address of his Purchaser
Representative; (iv) the Owner (A) is able to bear the economic risk of an
investment in the Apple Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, and (C) either
(1) has such knowledge and experience in financial and business matters
that the Owner is capable of evaluating the merits and risks of the
proposed investment in the Apple Common Stock, or (2) the Owner's
Purchaser Representative has had an adequate opportunity to ask questions
and receive answers from the officers of Apple concerning any and all
matters relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of Apple, the plans for the operations of the business of Apple,
the business, operations and financial condition of the Other Founding
Companies and any plans of Apple for additional acquisitions or the
Owner's Purchaser Representative has asked all questions of the nature
described in the immediately preceding clause, and all those questions
have been answered to his satisfaction and the satisfaction of his
Purchaser Representative;
(f) (i) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury; (ii) except as set forth in Section 4.01(f) of the Disclosure
Statement, the Owner owns, or will own, all of the issued and outstanding
shares of
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Orthodontic Entity Common Stock, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies and shareholders'
agreements; (iii) each outstanding share of Orthodontic Entity Common
Stock has been, or will be, legally and validly issued and is, or will be,
fully paid and nonassessable; (iv) there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity; and (v) no shares of capital sock of the
Orthodontic Entity have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Orthodontic Entity's stockholders; and
(g) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Owner
that all the following representations and warranties in this Article V are as
of the date of this Agreement, and will be on the date of the Closing and the
IPO Closing Date, true and correct: the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE IPO CLOSING DATE
Section 6.01 OF EACH PARTY. Until the IPO Closing Date, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Acquisition and satisfy the document delivery
requirements to which the obligations of the parties to effect the Acquisition
and the other transactions contemplated hereby are conditioned by the provisions
of this Article VII (all those actions collectively being the "Closing"). The
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Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Acquisition or the delivery of a bill of sale or the Acquisition
Consideration pursuant to Section 2.04. Instead, on the IPO Closing Date, all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of a bill of sale in
exchange for the Acquisition Consideration (including a certified check or
checks in an amount equal to the cash portion of the Acquisition Consideration)
will be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the parties
only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE OWNER. The
obligations of the Owner with respect to the actions to be taken by them at or
before the Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by the Owner pursuant to Section 11.05, of all the conditions
set forth in Sections 7.02(a) and 7.03. The obligations of the Owner with
respect to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of all the conditions set forth in Section 7.02(b) and
7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The
obligations of Apple with respect to actions to be taken at or before the
Closing are subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions: all the
conditions set forth in Sections 7.02(a) and 7.04(a). The obligations of Apple
with respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Service Agreement and the Stockholder Employment Agreement then shall be in full
force and effect.
(d) The obligations of Apple with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Owner Employment Agreement and the Service
Agreement in substantially the form attached hereto as Exhibit 7.01(d), then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b); and (iii) delivery to Apple of a bill of sale and
deeds, assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Apple, conveying all the Acquired
Assets to Apple.
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE IPO CLOSING DATE
Section 8.01 OF EACH PARTY. From and after the IPO Closing Date,
subject to the waiver provisions of Section 11.05, each party hereto will comply
with each covenant for
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which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. The Owner agrees that he will
not, during the period beginning on the date hereof and ending on the fifth
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Business or
Apple or any Subsidiary of Apple (Apple and its Subsidiaries collectively
being "Apple" for purposes of this Article X) within a radius of 10 miles
of each location in which the Owner was engaged in business on the date
hereof or immediately prior to the IPO Closing Date (those locations
collectively being the "Territory");
(b) call on any natural person who is at that time employed by Apple
with the purpose or intent of attracting that person from the employ of
Apple, provided that the Owner may call on and hire any of his Immediate
Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Owner or Apple within
the Territory, (i) for the purpose of soliciting or selling any product or
service in competition with Apple within the Territory and (ii) with the
knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, the Owner may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on
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the New York Stock Exchange or included in the Nasdaq National Market. For
purposes hereof and the respective Tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Acquisition Consideration to be received by the Owner pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Owner's agreement to observe the covenants in this Section
10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by the Owner of his covenants
in Section 10.01, and because of the immediate and irreparable damage that could
be caused to Apple for which it would have no other adequate remedy, the Owner
agrees that Apple may enforce the provisions of Section 10.01 by injunctions and
restraining orders against the Owner if he breaches any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Owner in
light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Owner in Apple as a result of
the Acquisition.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to the
Owner, the parties hereto, including the Owner, acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that extent
as applied to the Owner.
Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Owner against Apple, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Apple of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of the Owner by excluding from that computation any time during which the Owner
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision hereof
by any party hereto.
Section 10.06 MATERIALITY. The Owner hereby agrees that this Article
X is a material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Owner will not
voluntarily, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Apple Common Stock received in the Acquisition or (B) any interest in (including
any option to buy or sell) any of those shares of Apple Common Stock, in whole
or in part, and Apple will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of Apple Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Apple Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of Apple Common Stock acquired by the Owner pursuant to
Section 2.04 to any of the Owner's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the Apple Common Stock delivered to each Owner pursuant
to Section 2.05 will bear a legend substantially in the form set forth below and
containing such other information as Apple may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON
__________ [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE]
(THE "RESTRICTED PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR
RESTRICTED SECURITIES UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS
REDUCED BY THE SECURITIES AND
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EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Owner (i) acknowledges that the shares of Apple Common Stock
to be delivered to the Owner pursuant to Section 2.04 have not been and,
except pursuant to the Registration Rights Agreement, if applicable, will
not be registered under the Securities Act and therefore may not be resold
by the Owner without compliance with the Securities Act and (ii) covenants
that none of the shares of Apple Common Stock issued to the Owner pursuant
to Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Apple Common Stock
issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to the Owner will bear any legend required by the
securities or blue sky laws of the state in which the Owner resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the Owner
represents and warrants to Apple that the Owner has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby, and agrees, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify Apple against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Owner.
Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Owner. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among
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the Owner and Apple and supersede all prior agreements and understandings, both
written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Owner and Apple. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple and the Owner, respectively, will each pay
their, and their Representatives fees, expenses and disbursements incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by Apple under this Agreement, including the
costs of preparing the Registration Statement, and (b) the Owner will pay all
sales, use, transfer and other similar Taxes and fees (collectively, "Transfer
Taxes") incurred by the Owner or Apple in connection with the transactions
contemplated hereby, and the fees, expenses and disbursements of Counsel for the
Owner incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Owner terminates this Agreement otherwise than as permitted by Article XII,
the Owner will, no later than 10 Houston, Texas business days after Apple makes
a written request therefor, reimburse Apple in the amount equal to the aggregate
fees, costs and other expenses invoiced to Apple by Arthur Andersen LLP in
connection with its audit of the Business' financial statements at December 31,
1996 and for the 12-month period then ended; provided further, however, that an
Owner's estate shall not be required to reimburse Apple for such fees, costs and
expenses in the event such termination follows the death of the Owner. The Owner
will file all necessary documentation and Returns with respect to all Transfer
Taxes. In addition, the Owner will pay all Taxes due upon receipt of the
consideration payable to the Owner pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
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(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.; and
(ii) if to the Owner, addressed to him at the address set forth in
Section 2.04 of the Disclosure Statement, with copies (which shall not
constitute notice for purposes of this Agreement) to:
Richman, Lawrence, Mann, Greene, Arbiter & Chizever
9601 Wilshire Blvd.
Beverly Hills, California 90201
Attn: Gerald M. Chizever
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
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shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. The Owner acknowledges and agrees
that: (a) no firm commitment, binding agreement or promise or other assurance of
any kind, whether express or implied, oral or written, exists at the date hereof
that the Registration Statement will become effective or that the IPO will occur
at a particular price or within a particular range of prices or occur at all;
(b) neither Apple or any of its Representatives nor any prospective underwriters
in the IPO will have any liability to the Owner or any of his Affiliates or
associates for any failure of (i) the Registration Statement to become effective
(provided, however, that Apple will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices or
to occur at all; and (c) the decision of the Owner to enter into this Agreement
has been or will be made independent of, and without reliance on, any
statements, opinions or other communications of, or due diligence investigations
that have been or will be made or performed by, any prospective underwriter
relative to Apple or the IPO. The Underwriter shall have no obligation to the
Owner or with respect to any disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Owner;
(ii) by the Owner, on the one hand, or by Apple, on the other hand,
if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by December 31, 1997, unless the
failure of such transactions to be consummated results from the willful
failure of the party seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to by
it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Owner, on the one hand, or by Apple, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
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(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Owner if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business days
after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Acquisition will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating
Officer
OWNER:
/s/ Ira S. Wiedman, D.D.S.
Printed Name: Ira S. Wiedman, D.D.S.
19
EXHIBIT 2.35
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF FEBRUARY 11, 1997
BY AND AMONG
APPLE ORTHODONTIX, INC.,
RONALD H. ROTH, D.D.S. and BRIAN W. WONG, D.D.S,
A Professional Dental Corporation
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS............................................... 1
Section 1.01 Certain Defined Terms................................... 1
ARTICLE II. THE MERGER AND RELATED MATTERS............................ 4
Section 2.01 Certificate of Merger................................... 4
Section 2.02 The Effective Time...................................... 5
Section 2.03 Certain Effects of the Merger........................... 5
Section 2.04 Effect of the Merger on Capital Stock................... 5
Section 2.05 Delivery, Exchange and Payment.......................... 6
Section 2.06 Fractional Shares....................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER............................................... 7
Section 3.01 By Each Stockholder..................................... 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS.............................. 8
Section 4.01 By the Company and Each Stockholder..................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF APPLE................... 9
Section 5.01 By Apple................................................ 9
ARTICLE VI. COVENANTS EXTENDING TO THE EFFECTIVE TIME................. 9
Section 6.01 Of Each Party........................................... 9
ARTICLE VII. THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................. 10
Section 7.01 The Closing and Certain Conditions...................... 10
ARTICLE VIII. COVENANTS FOLLOWING THE EFFECTIVE TIME.................... 11
Section 8.01 Of Each Party Other Than the Company.................... 11
ARTICLE IX. INDEMNIFICATION........................................... 11
Section 9.01 Indemnification Rights and Obligations.................. 11
ARTICLE X. LIMITATIONS ON COMPETITION................................ 11
Section 10.01 Prohibited Activities.................................. 11
Section 10.02 Damages................................................ 12
Section 10.03 Reasonable Restraint................................... 12
Section 10.04 Severability; Reformation.............................. 12
Section 10.05 Independent Covenant................................... 13
Section 10.06 Materiality............................................ 13
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ARTICLE XI. GENERAL PROVISIONS........................................ 13
Section 11.01 Treatment of Confidential Information.................. 13
Section 11.02 Restrictions on Transfer of Apple Common Stock......... 13
Section 11.03 Brokers and Agents..................................... 14
Section 11.04 Assignment; No Third Party Beneficiaries............... 15
Section 11.05 Entire Agreement; Amendment; Waivers................... 15
Section 11.06 Counterparts........................................... 15
Section 11.07 Expenses............................................... 15
Section 11.08 Notices................................................ 16
Section 11.09 Governing Law.......................................... 17
Section 11.10 Exercise of Rights and Remedies........................ 17
Section 11.11 Time................................................... 17
Section 11.12 Reformation and Severability........................... 17
Section 11.13 Remedies Cumulative.................................... 17
Section 11.14 Respecting the IPO..................................... 17
ARTICLE XII. TERMINATION............................................... 18
Section 12.01 Termination of this Agreement.......................... 18
Section 12.02 Liabilities in Event of Termination.................... 18
ii
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ADDENDUM 1 - Listing of Founding Companies
ANNEX 1 - Uniform Provisions
DISCLOSURE STATEMENT
EXHIBIT 4.01(d) - Form of General Release
EXHIBIT 7.01(d) - Form of Service Agreement
EXHIBIT 7.03(b)(iv) - Form of Registration Rights Agreement
EXHIBIT 7.04(a)(ii)(B)(5) - Form of IRC Section 1445 Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of February 11, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), Ronald H. Roth, D.D.S. and Brian W. Wong, D.D.S., a
California professional corporation (the "Company"), and the persons listed on
the signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder"). This
Agreement consists of the Agreement and Plan of Reorganization set forth below
and a separate document of Uniform Provisions, which shall be a part hereof for
all purposes.
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) The Company will merge into Apple on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) Apple will merge with, or acquire substantially all of the
tangible and intangible assets of, all or some of the orthodontic
practices listed in the accompanying Addendum 1 (each an "Other Founding
Company" and, collectively with the Company, the "Founding Companies")
pursuant to agreements that are (i) similar to this Agreement and (ii)
entered into among those entities and/or their owners and Apple
(collectively, the "Other Agreements"); and
(c) Apple shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of Apple and the Company have
approved and adopted this Agreement, intending to effect a transaction pursuant
to Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement and not defined below in this Section
1.01 have the respective meanings assigned to them in the Preliminary Statement
or Section 1.02 found in the Uniform Provisions.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Addenda, Annexes and Exhibits,
as each of the same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"Apple" means Apple Orthodontix, Inc., a Delaware corporation.
"Apple Acquisition Candidate" means any Entity engaged in any of the
businesses of providing orthodontic services to patients (i) which was
called on by any of the Company, Apple or the Subsidiaries of the Company
in connection with the possible acquisition by any of them of that Entity
or (ii) of which any of them has made an acquisition analysis.
"BCA" means the California Business Corporation Act.
"Closing" has the meaning specified in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to be
prepared by Apple for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"Company" means Ronald H. Roth, D.D.S. and Brian W. Wong, D.D.S., a
California professional corporation.
"Company Common Stock" means the common stock, par value $_________
per share, of the Company.
"Counsel for Apple" means Jackson & Walker, L.L.P.
"Counsel for the Company and the Stockholders" means:
Mr. Doug Callister
700 N. Brand #540
Glendale, California 91203
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"Current Balance Sheet Date" means September 30, 1996.
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"Disclosure Statement" means the written statement attached to and
made a part of this Agreement in which (a) exceptions are taken to certain
of the representations and warranties made by the Company and the
Stockholders herein, (b) it is confirmed that no exception is taken to
that representation and warranty or (c) additional information is provided
with respect to a particular provision herein or in the Uniform
Provisions.
"Dissenting Shares" has the meaning specified in Section 2.04.
"Founding Companies" has the meaning specified in the Preliminary
Statement of this Agreement.
"Initial Financial Statements" means (a) the consolidated balance
sheet of the Company as at September 30, 1996 and the related consolidated
statements of income (operations), cash flows and stockholders' equity for
the Company's nine-month period ended September 30, 1996, and (b) the
Current Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the
nine-month period ended on the Current Balance Sheet Date.
"Merger" has the meaning specified in the Preliminary Statement of
this Agreement.
"Merger Consideration" has the meaning specified in Section 2.04.
"Orthodontic Entity" means the California professional corporation
or association to be formed pursuant to Section 6.06.
"Orthodontic Entity Common Stock" has the meaning specified in
Section 3.01.
"Other Agreements" has the meaning specified in the Preliminary
Statement of this Agreement.
"Other Founding Company" has the meaning specified in the
Preliminary Statement of this Agreement.
"Pro Rata Share" means for each Stockholder the fraction expressed
as a percentage (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Section 3.02 of the Disclosure Statement, and (b) the denominator of which
is the total number of shares of outstanding Company Common Stock owned by
all Stockholders, as set forth in Section 3.02 of the Disclosure
Statement.
"Purchaser Representative" means a "purchaser representative" as
defined in Securities Act Rule 501(h).
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"Required Stockholders" means, at the time of any determination,
Stockholders who, at the Effective Time, will be or were entitled, subject
to the provisions of Section 2.05, to receive Merger Consideration
representing not less than 80% of the total Merger Consideration to be
received by all Stockholders pursuant to Section 2.04.
"Responsible Officer" means Brian W. Wong, D.D.S.
"Restricted Period" has the meaning specified in Section 11.02.
"Scheduled Agreements" means the agreements described in Section
4.11 of the Disclosure Statement.
"Service Agreement" means the Service Agreement to be entered into
as of the IPO Pricing Date among Apple, the Stockholders and the
Orthodontic Entity.
"Stockholder" has the meaning specified in the preamble of this
Agreement.
"Stockholder Employment Agreement" means the Employment Agreement to
be entered into as of the IPO Pricing Date between the Orthodontic Entity
and the Stockholder.
"Surviving Corporation" means Apple, the Person to be designated in
the Certificate of Merger as the surviving corporation of the Merger.
"Territory" has the meaning specified in Section 10.01.
"Threshold Amount" means 2% of the Transaction Value.
"Transaction Value" means an amount equal to the Company's gross
revenues (less bad debt) for the 12-month period ended December 31, 1996
multiplied by 1.2.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II.
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of California.
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Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight or standard time, on the IPO
Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Apple in accordance
with the provisions of the BCA, (b) the Company will cease to exist as a
separate legal entity, (c) Apple will be the Surviving Corporation and, as such,
will, all with the effect provided by the BCA, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Apple and (ii) be governed by the laws of the State of Delaware, (d) the
Charter Documents of Apple then in effect will become and thereafter remain
(until changed in accordance with (i) the applicable law (in the case of the
articles of incorporation) or (ii) its terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (e) the board of directors of
Apple immediately prior to the Effective Time will be the board of directors of
the Surviving Corporation, and those persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Delaware and the Charter Documents of the Surviving Corporation,
and (f) the officers of Apple immediately prior to the Effective Time will be
the respective officers of the Surviving Corporation, subject to the provisions
of the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A) the
amount of cash and the number of whole shares of Apple Common Stock
determined as provided in Section 2.04 of the Disclosure Statement (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Apple Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding as one
share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Sections 2.05 and 2.06, without
interest, the Merger Consideration. Notwithstanding the foregoing, the right to
receive the Merger Consideration will not apply to any shares of Company Common
Stock
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which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Sections 1300-1312 of the BCA, it being intended and agreed that any holder
of those shares shall have in consideration for the cancellation thereof only
the rights, if any, afforded to that holder under Sections 1300-1312 of the BCA.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT. (a) At or after the
Effective Time: (i) each Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to
Apple (or any agent that may be appointed by Apple for purposes of this Section
2.05), receive, subject to the provisions of this Section 2.05 and Section 2.06,
his Pro-Rata Share of the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of Apple Common Stock included
in the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of Apple Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by Apple at the Effective Time.
(b) Each Stockholder will deliver to Apple (or any agent that may be
appointed by Apple for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to Apple Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of Apple Common Stock have been issued in the Merger
until those certificates are surrendered as provided herein, but (i) on that
surrender Apple will cause to be paid, to the Person in whose name the
certificates representing such shares of Apple Common Stock shall then be
issued, the amount of dividends or other distributions previously paid with
respect to such whole shares of Apple Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, Apple will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
Apple Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
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Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Apple Common Stock will be issued, and any
Stockholder entitled hereunder to receive a fractional share of Apple Common
Stock but for this Section 2.06 will have the cash portion of the Merger
Consideration hereunder reduced in an amount sufficient to enable the issuance
of an additional whole share of Apple Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each of the Stockholders
represents and warrants to Apple that, as applied solely to himself, all the
following representations and warranties in this Article III are as of the date
of this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of Apple Common Stock to be
issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection
with any distribution; (ii) he is not a party to any agreement or other
arrangement for the disposition of any shares of Apple Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) he is
either an "accredited investor" as defined in Securities Act Rule 501(a)
or, if he is not such an investor, Section 3.01(a) of the Disclosure
Statement sets forth the name and address of his Purchaser Representative;
(iv) he (A) is able to bear the economic risk of an investment in the
Apple Common Stock acquired pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, and (C) either (1) has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in
the Apple Common Stock, or (2) his Purchaser Representative has had an
adequate opportunity to ask questions and receive answers from the
officers of Apple concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Apple, the plans for
the operations of the business of Apple, the business, operations and
financial condition of the Other Founding Companies and any plans of Apple
for additional acquisitions, or his Purchaser Representative has asked all
questions of the nature described in the immediately preceding clause, and
all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative;
(b) the capitalization of the Orthodontic Entity shall be in
compliance with the requirements of the applicable regulations in the
Organization State, and no shares of capital stock of the Orthodontic
Entity (the "Orthodontic Entity Common Stock") are, or will be, held in
treasury;
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(c) except as set forth in Section 3.01(c) of the Disclosure
Statement, the Stockholders own, or will own, all of the issued and
outstanding shares of Orthodontic Entity Common Stock, free and clear of
all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholders' agreements;
(d) each outstanding share of Orthodontic Entity Common Stock has
been, or will be, legally and validly issued and is, or will be, fully
paid and nonassessable, and there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into
or exchangeable for, any of the authorized or outstanding securities of
the Orthodontic Entity;
(e) no shares of capital stock of the Orthodontic Entity have been
issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Orthodontic Entity's
stockholders; and
(f) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct as applied solely to
himself, and his agreements set forth in that Article hereby are agreed
to.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and
each Stockholder jointly and severally represent and warrant to, and agree with,
Apple that all the following representations and warranties in this Article IV
are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the Company
Subsidiaries is the State of California, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of
California) in which it owns or leases property or in which the carrying
on of its business as now conducted so requires except where the failure
to be so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
25,000 shares of Company Common Stock, of which 500 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) no outstanding Derivative Securities of the
Company exist;
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(c) (i) the terms and conditions of each of the Scheduled Agreements
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's-length transaction with a Person other
than an Affiliate of the Company, (ii) the rentals provided for in the
Scheduled Agreements constituting leases do not and will not exceed fair
market rentals of the properties being rented or leased under those
Scheduled Agreements and (iii) the payments provided to be made in the
other Scheduled Agreements do not exceed the fair market value of the
services performed;
(d) prior to the IPO Pricing Date: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all necessary
corporate action on the part of the Company and the Stockholders to (1)
authorize the Company to engage in any business in which the BCA permits a
corporation incorporated thereunder lawfully to engage (if the applicable
Organization State laws governing the Company so permit) and (2) abolish
the preemptive rights of holders of Company Common Stock and (B) the
articles reflecting these amendments shall have been duly filed with and
accepted by the Secretary of State of the State of California; and (ii)
each Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to Apple, a written instrument that: (A)
acknowledges the Company is and has, and releases the Company for having
and continuing to be, engaged in businesses beyond the purposes presently
set forth in the Company's articles of incorporation; and (B) (1)
acknowledges the Company may have issued and sold Company Common Stock to
one or more of the other Stockholders in violation of the preemptive
rights the BCA affords the acknowledging Stockholder and (2) releases all
claims of every kind the acknowledging Stockholder has or might have
against the Company and each other Stockholder as a result of those sales;
and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article hereby are agreed to.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF APPLE
Section 5.01 BY APPLE. Apple represents and warrants to the Company
and each Stockholder that all the following representations and warranties in
this Article V are as of the date of this Agreement, and will be on the date of
the Closing and the IPO Closing Date, true and correct: the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI.
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which
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provision is made in Article VI of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE VII.
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS. (a) THE CLOSING. On
or before the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the BCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the BCA and
(2) providing that the Merger will become effective on the IPO Closing Date and
(B) the filing of such Certificate of Merger with the Secretary of State of the
State of California), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05 and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the Merger and
the other transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing"). The
Closing will take place at the offices of Jackson & Walker, L.L.P., 42nd Floor,
1100 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later
time on the IPO Pricing Date as Apple shall specify by written notice to Robert
J. Syverson. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificates of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the Closing to
the IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of all the
conditions set forth in Section 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF APPLE. The obligations
of Apple with respect to actions to be taken at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or waiver by
them pursuant to Section 11.05, of the following conditions: (i) the Company
shall have delivered to Apple copies of the articles of incorporation, each as
amended to the date of the Closing and certified by the Secretary of State of
the State of California as of a Current Date, of the Company and each Company
Subsidiary; and (ii) all the conditions set forth in Sections 7.02(a) and
7.04(a). The obligations of Apple with respect
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to the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of the following conditions: (i) the Stockholder
Employment Agreement and the Service Agreement in substantially the form
attached hereto as Exhibit 7.01(d), then shall be in full force and effect; and
(ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(d) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII.
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX.
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Share of the
Transaction Value is 100% for Brian W. Wong, D.D.S.
ARTICLE X.
LIMITATIONS ON COMPETITION
Section 10.01 PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the fifth anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or Apple or any Subsidiary of Apple (Apple and its
Subsidiaries collectively being "Apple" for purposes of this Article X)
within a radius of 10 miles of each location in which any of the Company
or the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (those locations collectively
being the "Territory");
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(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or Apple with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or Apple, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or Apple within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or Apple within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any Apple Acquisition Candidate, with the knowledge of
that Person's status as an Apple Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than Apple.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective Tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02 DAMAGES. Because of the difficulty of measuring
economic losses to Apple as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to Apple for which it would have no other adequate remedy,
each Stockholder agrees that Apple may enforce the provisions of Section 10.01
by injunctions and restraining orders against that Stockholder if he breaches
any of those provisions.
Section 10.03 REASONABLE RESTRAINT. The parties hereto each agree
that Sections 10.01 and 10.02 impose a reasonable restraint on the Stockholders
in light of the activities and business of Apple on the date hereof, the current
business plans of Apple and the investment by each Stockholder in Apple as a
result of the Merger.
Section 10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant in this Article X is not intended by any party hereto to, and shall
not, affect the provisions of any other covenant in this Article X. If any court
of competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Stockholder, the parties hereto, including that Stockholder, acknowledge their
mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
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Section 10.05 INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against Apple,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Apple of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06 MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI.
GENERAL PROVISIONS
Section 11.01 TREATMENT OF CONFIDENTIAL INFORMATION. Each party
hereto will comply with each covenant for which provision is made in Section
11.15 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 RESTRICTIONS ON TRANSFER OF APPLE COMMON STOCK. (a)
During the two-year period ending on the second anniversary of the IPO Closing
Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of Apple Common Stock received by any Stockholder in the Merger or (B)
any interest in (including any option to buy or sell) any of those shares of
Apple Common Stock, in whole or in part, and Apple will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Apple Common Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of Apple Common Stock acquired pursuant to
Section 2.04 (including, for example engaging in put, call, short-sale, straddle
or similar market transactions); provided, however, that this Section 11.02
shall not restrict any transfer of Apple Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the Apple Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as Apple may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES
THERETO, THE SHARES
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REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY
OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES
UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE
CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Apple Common Stock to be delivered
to that Stockholder pursuant to Section 2.04 have not been and, except pursuant
to the Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of Apple Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of Apple
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE SECURITIES
LAWS.
In addition, certificates evidencing shares of Apple Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 BROKERS AND AGENTS. Except as disclosed in the Private
Placement Memorandum or in Section 11.03 of the Disclosure Statement, the
Stockholders jointly and severally represent and warrant to Apple that the
Company has not directly or indirectly employed or become obligated to pay any
broker or similar agent in connection with the transactions contemplated hereby,
and agree, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify Apple against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
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Section 11.04 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of Apple, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Stockholders, the Company and Apple and supersede all
prior agreements and understandings, both written and oral, relating to the
subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, that
amendment, modification, supplement or waiver is in writing and signed by the
Required Stockholders, the Company and Apple; provided, however, that no such
amendment, modification, supplement or waiver will be effective unless it is
signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) Apple will pay the fees, expenses and disbursements
of Apple and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by Apple under this Agreement, including the costs of preparing
the Registration Statement, and (b) the Stockholders will pay from personal
funds, and not from funds of the Company or any Company Subsidiary, all sales,
use, transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date; provided, however, if
the Company or the Required Stockholders terminate this Agreement otherwise than
as permitted by Article XII, the Company will, no later than 10 Houston, Texas
business days after Apple makes a written request therefor, reimburse Apple in
the amount equal to the aggregate fees, costs and other expenses invoiced to
Apple by Arthur Andersen LLP in connection with its audit of the Company's
financial statements at December 31, 1996 and for the 12-month period then
ended; provided further, however, that a Stockholder's estate shall not be
required to reimburse
15
<PAGE>
Apple for such fees, costs and expenses in the event such termination follows
the death of the Stockholder. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or Apple or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.08 NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to Apple, addressed to it at:
Apple Orthodontix, Inc.
One West Loop South Suite 100
Houston, Texas 77027
Attn.: Robert J. Syverson, President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Section 2.04 of the Disclosure Statement; and
(iii) if to the Company, addressed to it at:
Ronald H. Roth, D.D.S. and
Brian W. Wong, D.D.S.,
A Professional Dental Corporation
320 N. San Mateo Drive
San Mateo, California 94401
Attn: Brian W. Wong, D.D.S.
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Mr. Doug Callister
700 N. Brand #540
Glendale, California 91203
16
<PAGE>
Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of
this Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Apple or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that Apple will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1997)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to Apple or
the IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders or with respect to any disclosure contained in the Registration
Statement.
17
<PAGE>
ARTICLE XII.
TERMINATION
Section 12.01 TERMINATION OF THIS AGREEMENT. (a) This Agreement may
be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of Apple and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case
of the Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or thereafter on
the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
Apple, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of
the covenants, agreements or conditions contained herein; or
(iv) by Apple if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by Apple or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect. If this Agreement is terminated pursuant to this Section 12.01
after the Certificate of Merger has been filed with the Secretary of State of
the State of California, but before the IPO has been consummated, Apple will
take all actions that Counsel for the Company and the Stockholders advises Apple
are required by the applicable laws of the State of California in order to
rescind the Merger.
Section 12.02 LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the
18
<PAGE>
breach by that party of any of its representations, warranties or covenants set
forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
APPLE ORTHODONTIX, INC.
By: /s/ Robert J. Syverson
Printed Name: Robert J. Syverson
Title: President and Chief Operating Officer
RONALD H. ROTH, D.D.S. and BRIAN W.
WONG, D.D.S., a Professional Dental
Corporation
By: /s/ Brian W. Wong, D.D.S.
Printed Name: Brian W. Wong, D.D.S.
Title: President
STOCKHOLDER:
/s/ Brian W. Wong, D.D.S.
Printed Name: Brian W. Wong, D.D.S.
19
Exhibit 4.1
AOI LOGO
APPLE ORTHODONTIX, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN DALLAS, TEXAS AND NEW YORK, NEW YORK
COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS AND LEGENDS
CUSIP 037849 10 6
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK,
$.001 PAR VALUE, OF
APPLE ORTHODONTIX, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued under
and shall be subject to the provisions of the laws of the State of Delaware and
all of the provisions of the Restated Certificate of Incorporation and Bylaws of
the Corporation and any amendments thereto (copies of which are on file at the
office of the Corporation), to all of which the holder, by acceptance hereof,
assents. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
(SEAL APPLE ORTHODONTIX, INC.)
Dated:
SECRETARY
JOHN G. VORDRAK
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
APPLE ORTHODONTIX, INC.
The Corporation is authorized to issue Class A Common Stock, par value
$.001 per share, Class B Common Stock, par value $.001 per share and Preferred
Stock, par value $.001 per share. The Board of Directors of the Corporation has
authority to fix the number of shares and the designation of any series of
Preferred Stock and to determine the powers, designations, preferences and
relative, participating, optional or other rights between classes of stock or
series thereof of the Corporation, and the qualifications, limitations or
restrictions of such preferences and/or rights. The Corporation will furnish
without charge to each stockholder who so requests a full statement of the
foregoing as established from time to time by the Restated Certificate of
Incorporation of the Corporation and by any certificate of designation. Any
such request should be made to the Secretary of the Corporation at the offices
of the Corporation.
The following abbreviations, when used in the Inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT _____Custodian __
TEN ENT - as tenants by the entireties (Cust.) (Minor)
JT TEN - as joint tenants with Under Uniform Gifts to Minor Acts
right of survivorship Act ________________________________
and not as tenants in common Minor
UNIF GIFT MIN ACT ____Custodian (until age ___)
(Cust)
________ under Uniform Transfers
( )
the Minors Act________________
(State)
Additional abbreviations may also be used through not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________
X __________________________________________
X __________________________________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME(s) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _____________________________
THE SIGNATURE MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT
S.E.C. RULE 17A d-15
EXHIBIT 5.1
May 12, 1997
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas
Re: Registration Statement on Form S-1 of Apple Orthodontix, Inc.
Gentlemen:
We are acting as counsel for Apple Orthodontix, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of the offer and sale of up to
2,350,000 shares (and up to an additional 352,500 shares to cover underwriters'
over-allotments) of the Company's Class A Common Stock, par value $.001 per
share (the "Shares"). A Registration Statement on Form S-1, Registration No.
333-22785, and Amendment No. 1 to Form S-1 have been filed with the Securities
and Exchange Commission (the "Commission") and we understand that an Amendment
No. 2 to From S-1 is expected to be filed with the Commission on or about the
date hereof (as amended, the "Registration Statement"). The Shares are to be
sold to the underwriters for resale to the public as described in the
Registration Statement and pursuant to the underwriting agreement (the
"Underwriting Agreement") filed as an exhibit to the Registration Statement.
In reaching the conclusions expressed in this opinion we have examined and
relied on such documents, corporate records and other instruments, including
certificates of public officials and certificates of officers of the Company,
and made such further investigation and inquiry as we have deemed necessary to
reach the opinions expressed herein. In making the foregoing examinations, we
have assumed the genuineness of all signatures on original documents, the
authenticity, accuracy and completeness of all documents submitted to us as
originals and the conformity to original documents of all copies submitted to
us.
Based solely upon the foregoing, subject to the comments and exceptions
hereinafter stated, it is our opinion that the Shares, when sold by the Company
in accordance with the terms
<PAGE>
of the Underwriting Agreement for consideration having a value not less than the
par value thereof, will be validly issued, fully paid and nonassessable.
We express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America, in each case as in effect on the date hereof.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm therein under the
caption "Legal Matters." In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Jackson & Walker, L.L.P.
EXHIBIT 10.6
================================================================================
FORM OF SERVICE AGREEMENT
DATED AS OF THE ____ DAY OF ________________, 1997
BY AND BETWEEN
APPLE ORTHODONTIX, INC.
__________________, D.D.S.
AND
_____________________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I.................................................................................. 1
Definitions........................................................................ 1
Section 1.1 Definitions................................................... 1
ARTICLE II................................................................................. 6
Relationship of the Parties........................................................ 6
ARTICLE III................................................................................ 6
Services to be Provided by Apple................................................... 6
Section 3.1 Overall Function.............................................. 6
Section 3.2 General Administrative Services. ............................. 7
Section 3.3 Facilities.................................................... 9
Section 3.4 Acquisition and Assistance.................................... 10
Section 3.5 Inventory and Supplies........................................ 10
Section 3.6 Advertising and Public Relations.............................. 10
Section 3.7 Personnel..................................................... 10
Section 3.8 Quality Assurance............................................. 11
Section 3.9 Other Consulting and Advisory Services........................ 11
ARTICLE IV................................................................................. 11
Obligations of the Orthodontic Entity and Orthodontist............................. 11
Section 4.1 Employment of Orthodontist Employees.......................... 11
Section 4.2 Professional Services......................................... 12
Section 4.3 Orthodontic Practice.......................................... 12
Section 4.4 Orthodontic Entity's and Orthodontist's
Internal Matters.............................................. 13
Section 4.5 Compliance with Laws.......................................... 13
Section 4.6 Ancillary Services............................................ 14
Section 4.7 Premises and Personal Property................................ 14
Section 4.8 Orthodontic Entity Employee Benefit Plans..................... 14
Section 4.9 Peer Review................................................... 15
Section 4.10 Additional Orthodontists...................................... 15
ARTICLE V.................................................................................. 16
Restrictive Covenants and Liquidated Damages....................................... 16
Section 5.1 Restrictive Covenants by the Orthodontic Entity............... 16
Section 5.2 Restrictive Covenants of Orthodontist......................... 16
Section 5.3 Acknowledgement of Proprietary Interest....................... 17
Section 5.4 Covenant Not-to-Divulge Confidential and Proprietary
Information................................................... 18
Section 5.5 Return of Materials to Apple.................................. 18
Section 5.6 [INTENTIONALLY DELETED]....................................... 18
Section 5.7 Restrictive Covenants of Orthodontic Entity Professional
Employees..................................................... 18
Section 5.8 RESTRICTIVE COVENANTS OF APPLE ............................... 19
Section 5.9 Remedies...................................................... 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE VI................................................................................. 19
Financial and Security Arrangements................................................ 19
Section 6.1 Service Fees.................................................. 19
Section 6.2 Excluded Expenses............................................. 20
Section 6.3 Working Capital Loans......................................... 20
Section 6.4 Security Agreement............................................ 20
ARTICLE VII................................................................................ 21
Records............................................................................ 21
Section 7.1 Records Owned by Apple........................................ 21
Section 7.2 Access to Records............................................. 21
ARTICLE VIII............................................................................... 21
Insurance and Indemnity............................................................ 21
Section 8.1 Insurance to be Maintained by the Orthodontic Entity and
Orthodontist.................................................. 21
Section 8.2 Insurance to be Maintained by Apple........................... 22
Section 8.3 Continuing Liability Insurance Coverage....................... 22
Section 8.4 Additional Insureds........................................... 22
Section 8.5 Indemnification............................................... 22
ARTICLE IX................................................................................. 23
Term and Termination............................................................... 23
Section 9.1 Term of Agreement............................................. 23
Section 9.2 Extended Term................................................. 23
Section 9.3 Termination by the Orthodontic Entity and Orthodontist........ 23
Section 9.4 Termination by Apple.......................................... 23
Section 9.5 Termination by Orthodontist................................... 24
Section 9.6 Effective Date of Termination................................. 24
Section 9.7 Purchase of Assets............................................ 25
Section 9.8 Terms of Purchase............................................. 25
Section 9.9 Exception to Purchase......................................... 26
Section 9.10 Effect Upon Termination....................................... 26
ARTICLE X.................................................................................. 26
General Provisions................................................................. 26
Section 10.1 Assignment.................................................... 26
Section 10.2 Amendments.................................................... 27
Section 10.3 Waiver of Provisions.......................................... 27
Section 10.4 Additional Documents.......................................... 27
Section 10.5 Attorneys' Fees............................................... 27
Section 10.6 Contract Modifications for Prospective Legal Events........... 27
Section 10.7 Parties In Interest; No Third-Party Beneficiaries............. 28
Section 10.8 Entire Agreement.............................................. 28
Section 10.9 Severability.................................................. 28
Section 10.10 Governing Law................................................. 28
Section 10.11 No Waiver; Remedies Cumulative................................ 28
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
Section 10.12 Language Construction......................................... 29
Section 10.13 Communications................................................ 29
Section 10.14 Captions...................................................... 29
Section 10.15 Gender and Number............................................. 29
Section 10.16 Reference to Agreement........................................ 29
Section 10.17 Notice........................................................ 29
Section 10.18 Choice of Forum............................................... 30
Section 10.19 Service of Process............................................ 30
Section 10.20 Counterparts.................................................. 30
Section 10.21 Defined Terms................................................. 30
</TABLE>
EXHIBITS
Exhibit 1.1(u) Orthodontic Entity Professional Employment Agreements
Exhibit 7.3. Form of Security Agreement
- iii -
<PAGE>
SERVICE AGREEMENT
This Service Agreement (this "Agreement"), dated as of
__________________, 1997, is by and between Apple Orthodontix Inc., a Delaware
corporation ("AOI" or "Apple"), ______________, D.D.S., ("Orthodontist") and
___________________________, a California __________ (the "Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, Orthodontic Entity and Orthodontist provide comprehensive
professional orthodontic care to the general public in the ____________________
area; and
WHEREAS, Apple is in the business of owning certain assets of
orthodontic clinics and providing consulting, administrative, and other support
services to and furnishing orthodontic practices with the necessary facilities,
equipment, non-orthodontist personnel, supplies and support staff services; and
WHEREAS, the Orthodontic Entity and Orthodontist desire to obtain the
services of Apple in performing such functions so as to permit the Orthodontic
Entity to devote its efforts on a concentrated and continuous basis to the
rendering of orthodontic services to its patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following definitions shall apply:
(a) "Acquisition" shall mean the acquisition described in the
Acquisition Agreement.
(b) "Acquisition Agreement" shall mean the _________________,
dated February _____ , 1997, among AOI, ____________________, and
Orthodontist.
(c) "Acquisition Closing Date" shall mean the date the
Acquisition is effective pursuant to the terms of the Acquisition
Agreement.
1
<PAGE>
(d) "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, such
person.
(e) "AOI Group" shall mean Apple, Affiliates of Apple or AOI and
all professional associations or corporations or other entities for
which Apple or its Affiliates provides management services.
(f) "AOI Plans" shall have the meaning set forth in SECTION .
(g) "Apple Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(i) Any corporate overhead charges of Apple and other
items incurred by Apple that are not incurred specifically for
the purpose of providing services to the Orthodontic Entity or
Orthodontist or are not directly attributable to the Orthodontic
Entity or Orthodontist as reasonably determined by Apple,
including without limitation, salaries and benefits of executive
officers of Apple, except as otherwise provided for in the
definition of Orthodontic Entity and Orthodontist Expenses;
(ii) Any legal and accounting expenses incurred by Apple
in connection with the Acquisition;
(iii) All taxes of Apple, including but not limited to
state and federal income taxes and franchise taxes, but excluding
state and federal employee taxes related to Orthodontist or
employees who provide services for the Orthodontic Entity or
Orthodontist, property taxes on assets used by the Orthodontic
Entity or Orthodontist and other taxes specifically included in
Excluded Orthodontic Entity and Orthodontist Expenses; and
(iv) Any other expenses specifically included in "Apple
Expenses" in this Agreement.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Confidential and Proprietary Information" shall have the
meaning set forth in SECTION .
(j) "Disabled" or "Disability" shall mean, with respect to
Orthodontist, (a) having a mental or physical incapacity sufficiently
serious that Apple may reasonably anticipate that Orthodontist will be
unable to resume the normal performance of Orthodontist's duties within
the two years succeeding the commencement of Orthodontist's incapacity,
or (b) Orthodontist's receipt of benefits for a period of six
consecutive months by reason of disability under a salary continuation,
or other disability plan, maintained for Orthodontist's benefit. In the
event of such mental or physical incapacity, each Orthodontist agrees
upon Apple's request to submit Orthodontist's
2
<PAGE>
medical and other related records to be examined by an independent
third-party doctor selected by Apple whose decision shall govern for
purposes of determining the existence of a disability.
(k) "ERISA" shall have the meaning set forth in SECTION .
(l) "Excluded Orthodontic Entity and Orthodontist Expenses" shall
mean, (i) any salaries or other distributions made to Orthodontist or
any shareholder of the Orthodontic Entity, whether for professional fee
income or otherwise, and any expenses related thereto, including payroll
and other taxes associated therewith, and any expenses or costs
associated with benefits provided to Orthodontist or any shareholder of
the Orthodontic Entity, including pension benefits and life and health
insurance, (ii) any federal, state or other income taxes applicable to
the Orthodontic Entity or Orthodontist, (iii) legal, accounting and
other costs incurred by the Orthodontic Entity or Orthodontist in
connection with the negotiation, preparation of or closing of the
transactions contemplated by the Acquisition Agreement, this Agreement
or any other document executed in connection herewith or therewith, and
(iv) any other expenses specifically included in "Excluded Orthodontic
Entity and Orthodontist Expenses" in this Agreement.
(m) "Fair Market Value" shall mean as to any assets, the fair
market value of such assets as determined by Apple and the Orthodontic
Entity. In the event the parties are unable to agree upon the fair
market value, then Apple and the Orthodontic Entity shall each select an
independent appraiser who will then select a third independent appraiser
who will determine the fair market value of the asset in question.
(n) "GAAP" shall mean generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity or other practices and procedures as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination.
(o) "Initial Working Capital Line" shall have the meaning set
forth in SECTION .
(p) "Loan Termination Date" shall have the meaning set forth in
SECTION .
(q) "Orthodontic Entity" shall include the Orthodontic Entity as
defined in the first paragraph of this Agreement and all satellite
locations and related businesses of such Orthodontic Entity.
3
<PAGE>
(r) "Orthodontic Entity and Orthodontist Expenses" shall mean all
operating and non-operating expenses of Apple or AOI with respect to the
Orthodontic Entity for services requested by the Orthodontic Entity or
Orthodontist and all operating and non-operating expenses of the
Orthodontic Entity and Orthodontist incurred by the Orthodontic Entity
or Orthodontist in the operation of the Orthodontic Entity or the
practice of orthodontics by Orthodontist, including, without limitation:
(i) Salaries, benefits and other direct costs of all
employees of Apple who perform services for the benefit of the
Orthodontic Entity or Orthodontist and all salaries and benefits
of Orthodontic Entity Professional Employees and Orthodontic
Entity Employees, including, without limitation, federal and
state employee taxes and costs related to workers' compensation;
provided, however, only the portion of salaries, benefits and
other direct costs related to such employee, without mark-up,
that is allocable to work performed at or for the benefit of the
Orthodontic Entity or Orthodontist and approved by the
Orthodontic Entity or Orthodontist will be included in
Orthodontic Entity and Orthodontist Expenses;
(ii) Direct costs of all employees or consultants of Apple
and their Affiliates to provide services at or in connection with
the Orthodontic Entity or for the Orthodontist at or in
connection with the Orthodontic Entity for improved performance;
provided, however, (x) only the portion of salaries, benefits and
other direct costs related to such employee or consultant,
without mark-up, that is allocable to work performed at or for
the benefit of the Orthodontic Entity or Orthodontist and
approved by the Orthodontic Entity or Orthodontist will be
included in Orthodontic Entity and Orthodontist Expenses, and (y)
the salaries, other employee benefits or consulting fees paid by
Apple and its Affiliates to the consultants who will provide
three days per annum of marketing consulting services and one day
per annum of health and safety consulting services shall not be
included in Orthodontic Entity and Orthodontist Expenses but
shall be Apple Expenses;
(iii) Personal property and intangible taxes assessed
against assets of Apple or any of its Affiliates which are leased
or utilized for the benefit of the Orthodontic Entity or
Orthodontist under this Agreement, commencing on the date of this
Agreement; provided, however, only the portion of the taxes
related to such assets, without mark-up, that is allocable to the
use of such assets at or for the benefit of the Orthodontic
Entity or Orthodontist and approved by the Orthodontic Entity or
Orthodontist will be included in Orthodontic Entity and
Orthodontist Expenses;
(iv) All costs, fees, expenses and other disbursements
incurred in connection with the Premises (as defined in SECTION )
and the Personal Property (as defined in SECTION ), including,
without limitation, all costs of repairs, maintenance and
improvements, utility expenses (i.e., telephone, electric, gas
and water), janitorial services, refuse disposal, real or
personal property lease cost payments and expenses, taxes and
casualty, liability and other insurance,
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(v) Any provider tax or license fee assessed against the
Orthodontic Entity or Orthodontist by the State of California and
any sales and use taxes assessed against Apple and its
Affiliates, the Orthodontic Entity or Orthodontist related to
Orthodontic Entity operations, the practice of orthodontics by
Orthodontist or assessed against Apple related to services
provided hereunder;
(vi) Expenses related to professional meetings, seminars
and dues and professional licensing fees of Orthodontist or any
Orthodontic Entity Professional Employee or related to the
business of the Orthodontic Entity;
(vii) All expenses specifically included in "Orthodontic
Entity and Orthodontist Expenses" in this Agreement; and
(viii) Depreciation and amortization of all assets
purchased subsequent to the Acquisition for use by the
Orthodontic Entity and Orthodontist.
Provided, however, that, notwithstanding anything contained herein,
Apple Expenses and Excluded Orthodontic Entity and Orthodontist Expenses
shall not be included in Orthodontic Entity and Orthodontist Expenses.
(s) "Orthodontic Entity Employees" shall mean (i) those
individuals who are employed by or otherwise under contract or
associated with the Orthodontic Entity or Orthodontist that generate a
professional charge, and (ii) those individuals required by law to be
employed by the Orthodontic Entity or Orthodontist.
(t) "Orthodontic Entity Professional Employees" shall mean those
individuals who are orthodontists, dental hygienist or licensed
professionals employed by the Orthodontic Entity or Orthodontist or
otherwise under contract or associated with the Orthodontic Entity or
Orthodontist to provide professional orthodontic services to patients of
the Orthodontic Entity or Orthodontist, provided, however, that
Orthodontist shall be excluded from the definition of Orthodontic Entity
Professional Employees.
(u) "Orthodontic Entity Professional Employment Agreements" shall
mean the employment agreements entered into of even date herewith
between the Orthodontic Entity or Orthodontist and each Orthodontic
Entity Professional Employee (not including Orthodontic Entity
Employees) in substantially the form attached to the Acquisition
Agreement as EXHIBIT 1.1(U).
(v) "Orthodontic Entity Related Liabilities" shall have the
meaning set forth in SECTION .
(w) "Personal Property" shall have the meaning set forth in
SECTION .
(x) "Practice Plans" shall have the meaning set forth in
SECTION .
(y) "Premises" shall have the meaning set forth in SECTION .
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(z) "Purchase Assets" shall have the meaning set forth in
SECTION .
(aa)"Purchase Closing" shall have the meaning set forth in
SECTION .
(ab)"Security Agreement" shall have the meaning set forth in
SECTION .
(ac) "Tax Returns" shall include all federal, state, local,
franchise, property and other tax returns.
(ad) "Termination Date" shall have the meaning set forth in
SECTION .
ARTICLE II
RELATIONSHIP OF THE PARTIES
The Orthodontic Entity, Orthodontist and Apple intend to act and perform
as independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, agency or employment relationship between the
parties. Apple, the Orthodontic Entity and Orthodontist agree that the
Orthodontic Entity and Orthodontist shall retain the authority to direct the
orthodontic, professional, and ethical aspects of their orthodontic practice.
Apple shall neither exercise control over nor interfere with the
orthodontist-patient relationships of the Orthodontic Entity and Orthodontist,
which shall be maintained strictly between the orthodontists of the Orthodontic
Entity and their patients. The parties hereby agree that neither the benefits to
the Orthodontic Entity and Orthodontist hereunder, nor the payment of services
fees to Apple, require, are payment for, or are in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Apple or any of its Affiliates to any of the Orthodontic
Entity's or Orthodontist's patients in any facility or laboratory controlled,
managed or operated by Apple.
ARTICLE III
SERVICES TO BE PROVIDED BY APPLE
SECTION 3.1 OVERALL FUNCTION. In accordance with the terms hereof, Apple
shall provide or arrange for the services set forth in this ARTICLE , and the
costs, fees, expenses and other disbursements incurred by Apple in connection
therewith shall be included in Orthodontic Entity and Orthodontist Expenses,
except to the extent such costs, fees or expenses are Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses. Apple is authorized to perform its
services hereunder as is necessary or appropriate for the efficient operation of
the Orthodontic Entity. The Orthodontic Entity and Orthodontist will not act in
a manner which would prevent Apple from performing its duties hereunder and will
provide such information and assistance to Apple as is reasonably required by
Apple to perform its services hereunder. Apple shall, and shall use its best
efforts to cause its employees, to comply with all federal, state and local
laws, rules and regulations in its provision of services hereunder.
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SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
(a) The Orthodontic Entity hereby appoints Apple to serve as its
exclusive manager and administrator of non-orthodontist services
relating to the operation of the Orthodontic Entity and the practice of
orthodontics by Orthodontist, subject to matters reserved for the
Orthodontic Entity or Orthodontist as herein provided, and Apple shall
have all necessary authority to perform such services in accordance with
the terms of this Agreement. The Orthodontic Entity agrees that the
purpose and intent of this Agreement is to relieve the Orthodontic
Entity and Orthodontist to the maximum extent possible of the
administrative, accounting, non-orthodontist personnel and business
aspects of its practice. Apple agrees that the Orthodontic Entity,
Orthodontist, Orthodontic Entity Employees and the Orthodontic Entity
Professional Employees, and only the Orthodontic Entity, Orthodontist,
Orthodontic Entity Employees and the Orthodontic Entity Professional
Employees, will perform the orthodontic functions of their respective
practices; provided, however, that to the extent that an Apple employee
assists Orthodontist, any Orthodontic Entity Professional Employee or
the Orthodontic Entity in performing orthodontic functions, such Apple
employee shall be subject to the professional direction and supervision
of Orthodontist, Orthodontic Entity Professional Employee or Orthodontic
Entity and in the performance of such orthodontic functions, shall not
be subject to any direction or control by, or liability to, Apple,
except as may be specifically authorized by Apple. Apple will have no
authority, directly or indirectly, to perform or supervise, and will not
perform or supervise, any orthodontic function. Apple may, however,
advise the Orthodontic Entity and Orthodontist as to the relationship
between its performance of orthodontic functions and the overall
administrative and business functions of the practice to the extent
permitted by applicable law. Apple shall cause to be paid all federal
and state employment taxes and related tax reports for its employees.
(b) Apple shall, on behalf of Orthodontist and the Orthodontic
Entity, provide all services related to the billing of patients,
insurance companies and other third-party payors and collect the
professional fees for orthodontic services rendered by Orthodontist and
the Orthodontic Entity, for services performed outside the Orthodontic
Entity for its patients, and for all other professional and Orthodontic
Entity services and products and for services rendered by Orthodontist
in accordance with all applicable legal requirements and the policies
and procedures of third-party payors. To the extent necessary to comply
with applicable laws or the terms of any third-party payor arrangements,
Apple shall bill in the name of and on behalf of the Orthodontic Entity
and Orthodontist. The Orthodontic Entity hereby appoints Apple for the
term of this Agreement to be its true and lawful attorney-in-fact, for
the following purposes: (i) to bill patients, insurance companies and
other third-party payors in the Orthodontic Entity's and Orthodontist's
name and on their behalf pursuant to the fee schedule prepared by the
Orthodontic Entity and Orthodontist; (ii) to collect accounts receivable
resulting from such billing in the Orthodontic Entity's and
Orthodontist's name and on their behalf; (iii) to receive payments from
insurance companies, prepayments received from health care plans and all
other third party payors; (iv) to take possession of and endorse in the
name of the Orthodontic Entity (and/or in the name of an individual
orthodontist, such payment intended for purpose of payment of a
orthodontist's bill related to the Orthodontic Entity
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or Orthodontist) any notes, checks, money orders, insurance payments and
other instruments received in payment of accounts receivable; and (v) in
each case, after approval by the Orthodontist, to initiate the
institution of legal proceedings in the name of the Orthodontic Entity
or Orthodontist or Orthodontic Entity Professional Employee to collect
any accounts and monies owed to the Orthodontic Entity or Orthodontist
or Orthodontic Entity Professional Employee, to enforce the rights of
the Orthodontic Entity or Orthodontist or Orthodontic Entity
Professional Employee as creditors under any contract or in connection
with the rendering of any service, and to contest adjustments and
denials by third-party payors. The Orthodontic Entity and Orthodontist
shall, and shall cause each Orthodontic Entity Professional Employee to,
execute a Power of Attorney in form and substance acceptable to the
parties hereto in connection with the rights and powers granted to Apple
pursuant to this SECTION . All monies shall be accounted for by Apple as
being distinctly attributable to the Orthodontic Entity. The Orthodontic
Entity may perform the functions or exercise the rights set forth in
this SECTION only with the consent of Apple. The Orthodontic Entity and
Orthodontist will assist Apple with the functions set forth herein at
the request of Apple.
(c) Apple shall supply to the Orthodontic Entity the ordinary,
necessary or appropriate services for the efficient operation of the
Orthodontic Entity, including without limitation, necessary clerical,
accounting, payroll, legal, bookkeeping and computer services,
information management, information for the preparation of Tax Returns,
printing, postage and duplication services and orthodontic transcribing
services. Apple shall prepare monthly and annual unaudited financial
statements for the Orthodontic Entity containing a balance sheet and
income statement, which shall be delivered to the Orthodontic Entity
within 45 days after the end of each calendar month and 120 days after
the end of each calendar year. Any audits to be conducted with respect
to such financial statements shall be an Excluded Orthodontic Entity and
Orthodontist Expense.
(d) Apple shall maintain all files and records of the Orthodontic
Entity and Orthodontist relating to the operation of the Orthodontic
Entity or the practice of orthodontics by Orthodontist, including, but
not limited to, accounting, billing, collection and customary financial
records and patient files. The management of all files and records shall
comply with all applicable federal, state and local statutes and
regulations, and all files and records shall be located so that they are
readily accessible for patient care, consistent with ordinary records
management practices. The Orthodontic Entity and Orthodontist shall
supervise the preparation of, and direct the contents of, patient
orthodontic records, all of which shall remain confidential. All
original patient records shall be and remain the property of the
Orthodontic Entity or Orthodontist, as applicable; provided that, to the
extent permitted by applicable law, Apple shall have the right to copy
such patient records and to retain and use such copies.
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SECTION 3.3 FACILITIES.
(a) Apple shall make available to the Orthodontic Entity and
Orthodontist the premises that are described in SCHEDULE 3.3 attached
hereto (which describes each location where the Orthodontist provided
orthodontic services to patients on January 31, 1997 and each location
proposed to be opened to provide such services on such date) and such
other real property acquired (with the consent of the Orthodontic Entity
and Orthodontist) and improvements made by Apple or AOI for the use of
the Orthodontic Entity and Orthodontist hereunder (collectively, the
"Premises"); provided, that in the event that Apple's rights to use any
such premises shall terminate, Apple shall use reasonably commercial
efforts to provide other suitable premises to be used by the Orthodontic
Entity and Orthodontist, which premises shall be approved by the
Orthodontic Entity and Orthodontist, such approval not to be
unreasonably withheld. Apple shall obtain for the Orthodontic Entity and
Orthodontist all utilities reasonably required in connection with the
use of the Premises and shall provide for the proper cleanliness of the
Premises, including normal janitorial services and refuse disposal.
(b) Apple shall provide the Orthodontic Entity and Orthodontist
with the use of the equipment, furniture, fixtures, furnishings and
other tangible personal property acquired by Apple in the Acquisition,
together with replacements thereof and such other equipment, furniture,
fixtures, furnishings and tangible personal property acquired (with the
consent of the Orthodontic Entity or Orthodontist) by Apple or AOI for
the use of Orthodontic Entity and Orthodontist pursuant to the terms
hereof (collectively, the "Personal Property").
(c) Apple shall provide, finance, or cause to be provided or
financed, orthodontic related equipment as required by the Orthodontic
Entity. Apple may consult the Orthodontic Entity on the relationship
between its orthodontic equipment decisions and the overall
administrative and financial operations of the practice. All orthodontic
and non-orthodontic equipment acquired for the use of the Orthodontic
Entity shall be owned by Apple but shall be utilized solely by the
Orthodontic Entity so long as the Orthodontic Entity is repaying its
portion of the cost thereof. Apple and Orthodontic Entity will share
equally in the cost to purchase any new or replacement orthodontic or
non-orthodontic equipment to be acquired after consummation of the
Acquisition (except with respect to the first $100,000 worth of such
equipment, which shall be purchased by Apple), provided that the
Orthodontic Entity and Apple mutually agree to acquire such equipment.
Apple may advance or cause to be financed the total purchase value of
any equipment acquired. The Orthodontic Entity may repay in full its
share of the cost or finance such amount due to Apple in equal payments
over a term of up to 60 months at a rate of prime plus 1%. The amount,
if any, due to Apple will be paid monthly by the Orthodontic Entity. Any
amounts paid to Apple by the Orthodontic Entity pursuant to this Section
3.3(c) are Excluded Orthodontic Entity and Orthodontist Expenses.
(d) In the event Apple and the Orthodontic Entity jointly
determine to open a satellite orthodontic office, (i) Apple will bear
60% of the capital costs, and the Orthodontic Entity will bear 40% of
the capital costs, of opening such satellite office, and (ii) Apple
shall make available loans accruing annual interest at the prime rate of
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NationsBank of Texas, N.A. plus 1% to finance the Orthodontic Entity's
and Orthodontist's portion of such costs. No principal or interest
payments for any such loan shall be due until the first day of the
sixteenth month following the date of the loan (the "First Payment
Date"). The amount of interest that accrues until the date fifteen
months after the origination date of the loan shall be added to the
original principal amount of the loan to determine the principal amount
payable by the Orthodontic Entity. Sixty equal principal payments plus
accrued interest shall be payable beginning on the First Payment Date
and ending on the first day of the fifty-ninth month thereafter.
SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made
by the Orthodontic Entity or Orthodontist to employ additional orthodontists or
acquire orthodontist groups or practices, Apple may assist the Orthodontic
Entity in the identification and selection of orthodontists or orthodontist
groups or practices that may be beneficial in the operation of the Orthodontic
Entity. In the event that a decision is made by the Orthodontic Entity or
Orthodontist to pursue the employment of selected orthodontists or the
acquisition of a particular orthodontist group or practice, Apple may provide
recruiting, consulting, negotiating and other services and may provide for
legal, accounting and other professional advisor services in connection with
such transaction.
SECTION 3.5 INVENTORY AND SUPPLIES. Apple shall order and purchase
inventory and supplies, and such other ordinary, necessary or appropriate
materials which are reasonably necessary in the operation of the Orthodontic
Entity and which are requested by Orthodontist to deliver quality orthodontic
services in a cost-effective manner. Such inventory, supplies and other
materials shall be included in Orthodontic Entity and Orthodontist Expense at
their purchase price less discounts or rebates, if any.
SECTION 3.6 ADVERTISING AND PUBLIC RELATIONS. In consultation with the
Orthodontic Entity and Orthodontist, Apple shall design and produce (where
requested) any appropriate local public relations or advertising program on
behalf of the Orthodontic Entity, with appropriate emphasis on public awareness
of the availability of services at the Orthodontic Entity. Any design and
production costs incurred by Apple related to local public relations or
advertising programs requested by the Orthodontic Entity or Orthodontist shall
be Apple Expenses. All other costs of local advertising programs on behalf of
the Orthodontic Entity will be included in Orthodontic Entity and Orthodontist
Expenses, including, but not limited to, out-of-pocket costs incurred by Apple.
All public relations and advertising programs shall be conducted in compliance
with applicable standards of orthodontic ethics, laws and regulations. Apple
shall make available interest-free loans (up to an amount equal to the lesser of
the Orthodontic Entity's costs of local advertising and 6% of the Transaction
Value (as defined in the Acquisition Agreement)) to finance the Orthodontic
Entity's costs of local advertising until the first anniversary of the date of
this Agreement. The principal amount of any such loans shall be repaid by the
Orthodontic Entity in twelve equal monthly installments beginning on the first
anniversary of the date of this Agreement.
SECTION 3.7 PERSONNEL. Apple shall provide non-orthodontist professional
support and administrative personnel, clerical, secretarial, bookkeeping and
collection personnel reasonably necessary for the conduct of the Orthodontic
Entity's operations. Apple will consult with the orthodontist to determine the
salaries and fringe benefits to be paid to all such personnel. Such
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personnel shall be under the direction, supervision and control of Apple, with
those personnel performing patient care services subject to the professional
supervision of Orthodontist while such personnel are performing such patient
care services. If Orthodontist is dissatisfied with the services of any person,
Orthodontist shall consult with Apple. Apple shall in good faith determine
whether the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be reassigned or
terminated. All of Apple's obligations regarding staff shall be governed by the
overriding principle and goal of providing high quality orthodontic care.
Employee assignments shall be made to assure consistent and continued rendering
of high quality orthodontic support services and to ensure prompt availability
and accessibility of individual orthodontic support personnel to orthodontists
in order to develop constant, familiar and routine working relationships between
individual orthodontists and individual members of the orthodontic support
personnel. Apple shall maintain established working relationships wherever
possible and Apple shall make every effort consistent with sound business
practices to honor the specific requests of Orthodontist with regard to the
assignment of its employees. Apple shall provide administrative services such as
scheduling, personnel policies and payroll administration for Orthodontic Entity
Employees. Apple and the Orthodontic Entity shall use their best efforts to
define who are their respective employees for all administrative purposes.
SECTION 3.8 QUALITY ASSURANCE. Apple shall assist the Orthodontic Entity
in fulfilling its obligations to its patients to maintain a high quality of
orthodontic and professional services and any expenses incurred by Apple related
to such in connection therewith shall be included in Orthodontic Entity and
Orthodontist Expenses.
SECTION 3.9 OTHER CONSULTING AND ADVISORY SERVICES. Apple will provide
such consulting and other advisory services as requested by the Orthodontic
Entity or Orthodontist in all areas of the Orthodontic Entity's or
Orthodontist's business functions, including, without limitation, financial
planning, acquisition and expansion strategies, development of long-term
business objectives and other related matters. Subject to the provisions of
SECTION hereof, the costs and expenses of third-party consultants engaged by
Apple to provide such services shall be Orthodontic Entity and Orthodontist
Expenses.
ARTICLE IV
OBLIGATIONS OF THE ORTHODONTIC ENTITY AND ORTHODONTIST
SECTION 4.1 EMPLOYMENT OF ORTHODONTIST EMPLOYEES. The Orthodontist shall
have complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of any orthodontist employed by the
Orthodontic Entity, although at the request of the Orthodontic Entity or
Orthodontist, Apple shall consult with the Orthodontic Entity and Orthodontist
with respect to such matters. Although Apple may provide payroll and other
related services to the Orthodontic Entity and Orthodontist, the Orthodontic
Entity and Orthodontist shall be solely responsible for the payment of their
respective Orthodontic Entity Professional Employees' and Orthodontic Entity
Employees' salaries and wages, payroll taxes and all other taxes and charges now
or hereafter applicable to them. Neither the Orthodontic Entity, Orthodontist,
their respective Orthodontic Entity Professional Employees nor their
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respective Orthodontic Entity Employees shall have any claim under this
Agreement or otherwise against Apple or AOI for workers' compensation,
unemployment compensation, Social Security benefits or any other employee
benefits, all of which shall be the sole responsibility of the Orthodontic
Entity and Orthodontist. The Orthodontic Entity and Orthodontist shall only
employ and contract with licensed orthodontists and other persons meeting
applicable credentialling guidelines established by the Orthodontic Entity and
Orthodontist and approved by Apple, which approval will not be unreasonably
withheld. The Orthodontic Entity and Orthodontist shall cooperate in the
obtaining and retaining of professional liability insurance by ensuring that
their respective Orthodontic Entity Professional Employees and Orthodontic
Entity Employees and other employees who have malpractice exposure or liability
are insurable, and participating in an on-going risk management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Orthodontic Entity and
Orthodontist shall provide professional services to patients in compliance at
all times with ethical standards, laws, rules and regulations applying to the
Orthodontic Entity, Orthodontist, the Orthodontic Entity Professional Employees
and the Orthodontic Entity Employees. The Orthodontic Entity and Orthodontist
shall ensure that Orthodontist, Orthodontic Entity Professional Employees and
Orthodontic Entity Employees have all required licenses, credentials, approvals
or other certifications to perform his or her duties and services. In the event
that any disciplinary actions or orthodontic malpractice actions are initiated
against Orthodontist, an Orthodontic Entity Professional Employee or an
Orthodontic Entity Employee, the Orthodontic Entity shall immediately inform
Apple of such action and the underlying facts and circumstances. The Orthodontic
Entity and Orthodontist shall carry out a program to monitor the quality of
orthodontic care practiced at the Orthodontic Entity. The Orthodontic Entity
shall employ such Orthodontic Entity Professional Employees as is necessary to
provide efficient orthodontic care to patients of the Orthodontic Entity.
Orthodontist and the Orthodontic Entity shall make all reports and inquiries to
any state data bank required by applicable law.
SECTION 4.3 ORTHODONTIC PRACTICE. The Orthodontic Entity and
Orthodontist shall use and occupy the Premises exclusively for the practice of
orthodontics and for providing other related services and products. Unless
otherwise approved in writing by the Orthodontic Entity and Apple, it is
expressly acknowledged by the Orthodontic Entity and Orthodontist that the
orthodontic practice or practices conducted at the Orthodontic Entity shall be
conducted solely by orthodontists associated with the Orthodontic Entity, and
that the Orthodontic Entity and Orthodontist shall not permit any other
orthodontist or dental practitioner to use or occupy the Orthodontic Entity. The
Orthodontic Entity and Orthodontist shall be solely and exclusively in control
of all aspects of the practice of orthodontics and the delivery of orthodontic
services by Orthodontist or at the Orthodontic Entity's facilities. The
rendition of all orthodontic professional services, including, but not limited
to, diagnosis, treatment, therapy, the prescription of medicine and drugs, and
the supervision and preparation of orthodontic reports shall be the sole
responsibility of the Orthodontic Entity and Orthodontist. Apple shall have no
authority whatsoever with respect to the establishment of fees or charges for
the rendition of such services; provided, however, that in the event the
Orthodontic Entity or the Orthodontist renders orthodontic services to a patient
in consideration for anything other than cash, Apple will determine the value of
such consideration for purposes of determining the amount of revenues received
by the Orthodontic Entity or Orthodontist. From time to time, the Orthodontic
Entity and Orthodontist in their discretion will adopt and implement fee
schedules for non-prepaid
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patients which shall be reasonable in relation to fees generally being obtained
in the same or similar market areas. Notwithstanding any provision of this
Agreement to the contrary, nothing herein shall be construed as precluding Apple
or AOI from permitting the use of or from entering into agreements with other
orthodontists or entities owned by other orthodontists similar to this
Agreement, with respect to the Premises, Personal Property and tradenames,
trademarks and other intangible assets of Apple or AOI utilized by the
Orthodontic Entity or Orthodontist pursuant to this Agreement; provided any such
other agreement shall not eliminate or diminish Apple's obligations hereunder or
interfere with the Orthodontic Entity's or Orthodontist's business.
SECTION 4.4 ORTHODONTIC ENTITY'S AND ORTHODONTIST'S INTERNAL MATTERS.
The Orthodontic Entity and Orthodontist shall be responsible for matters
involving their respective corporate governance, employees and similar internal
matters, including, but not limited to, preparation and contents of such reports
to regulatory authorities governing the Orthodontic Entity and Orthodontist that
the Orthodontic Entity or Orthodontist are required by law to provide,
distribution of professional fee income among Orthodontist or the shareholders
of the Orthodontic Entity, disposition of the Orthodontic Entity's and
Orthodontist's property and stock and hiring and firing of their employees and
licensing. Except for the expenses attributable to the distribution of
professional fee income among Orthodontist or the shareholders of the
Orthodontic Entity which will be included in Excluded Orthodontic Entity and
Orthodontist Expenses, the costs incurred in connection with the foregoing
matters shall be Orthodontic Entity and Orthodontist Expenses. The legal,
accounting and other professional services fees incurred by Orthodontist or the
Orthodontic Entity in connection with the internal matters of the Orthodontic
Entity, the personal accounting of the Orthodontic Entity and Orthodontist and
similar internal and personal matters, including without limitation, the costs
associated with enforcing any contract with a Orthodontic Entity Professional
Employee (other than as set forth in SECTION ), shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
SECTION 4.5 COMPLIANCE WITH LAWS. The Orthodontic Entity and
Orthodontist shall, and shall use their best efforts to cause Orthodontist and
Orthodontic Entity Professional Employees to, comply with all applicable
federal, state and local laws, rules, regulations and restrictions in the
conduct of the Orthodontic Entity's and Orthodontist's business. Without
limiting the generality of the foregoing, the Orthodontic Entity and
Orthodontist shall use their best efforts to forbid Orthodontist and each
Orthodontic Entity Professional Employee to:
(a) enter into any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting
agreement, to provide services, lease space, lease equipment or engage
in any other venture or activity with any orthodontist, hospital,
pharmacy, home health agency or other person or entity which is in a
position to make or influence referrals to, or otherwise generate
business for, the Orthodontic Entity or Orthodontist, if such
transaction is in violation of any applicable law, rule or regulation;
(b) knowingly and willfully make or cause to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
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(c) knowingly and willfully make or cause to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment; and
(d) fail to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment.
SECTION 4.6 ANCILLARY SERVICES. The Orthodontic Entity and Orthodontist
agree not to acquire, establish or operate any satellite location, orthodontic
office, health maintenance organization, preferred provider organization,
exclusive provider organization or similar entity or organization established or
operated by the Orthodontic Entity or Orthodontist after the date hereof without
the prior written consent of Apple. Orthodontist and the Orthodontic Entity
shall not merge or consolidate with any other entity or individual or liquidate
or dissolve or wind-up Orthodontist's or the Orthodontic Entity's affairs or
enter into any partnerships, joint ventures or sale-leaseback transactions or
purchase or otherwise acquire (in one or a series of transactions) any part of
the property or assets of any other person or entity without the prior written
consent of Apple. Apple's consent shall be required for the Orthodontist to
provide orthodontic services at a location other than the Orthodontic Entity or
on behalf of an entity or person other than the Orthodontic Entity.
SECTION 4.7 PREMISES AND PERSONAL PROPERTY. The Orthodontic Entity and
Orthodontist shall use the Premises and Personal Property for their intended use
to minimize the risk of damage, excessive wear and tear, and malfunction or
other breakdown of the Premises and Personal Property or any part thereof. The
Orthodontic Entity and Orthodontist shall promptly inform Apple in writing of
any and all material replacements, repairs or maintenance to any of the Premises
or Personal Property and any failures of equipment that they become aware of.
The Orthodontic Entity and the Orthodontist shall comply with all covenants and
provisions set forth in any leases for the Premises entered into or assumed by
Apple and Apple agrees to provide copies of all such leases to the Orthodontic
Entity and Orthodontist.
SECTION 4.8 ORTHODONTIC ENTITY EMPLOYEE BENEFIT PLANS.
(a) Effective immediately before the Acquisition Closing Date,
the Orthodontic Entity and Orthodontist shall freeze or terminate all
"employee benefit plans" (as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that are (i) sponsored or maintained by the Orthodontic Entity or
Orthodontist and (ii) are set forth on SCHEDULE 4.8(A) (the "Practice
Plans"). In connection with such actions, all account balances and
accrued benefits under all tax-qualified Practice Plans (within the
meaning of Section 401(a) of the Code) shall be made fully vested and
nonforfeitable.
(b) Effective on the Acquisition Closing Date, Orthodontist shall
become a participating employer in AOI's employee benefit plans set
forth on SCHEDULE 4.8(B) (the "AOI Plans") with respect to
Orthodontist's employees. Orthodontist acknowledges that AOI will
sponsor a defined contribution plan and that Orthodontist may be
precluded by Section 401(k)(2)(B)(i) from paying distributions in
connection with the termination of
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any Practice Plan that contains a "cash or deferred arrangement" within
the meaning of Section 401(k) of the Code. Accordingly, AOI shall take
all actions as it may determine to be reasonable to facilitate the
merger of the assets and liabilities of any tax-qualified Practice Plan
into a tax-qualified AOI Plan if such merger of tax-qualified plans is
requested by Orthodontist.
(c) With respect to any Practice Plan or AOI Plan, neither
Orthodontist nor AOI shall take any action or make any contribution to
such plan that would cause such plan to become disqualified for federal
tax purposes. Orthodontist shall not adopt, maintain, or continue any
employee benefit plan after the Acquisition Closing Date without the
prior written approval of AOI.
(d) Expenses incurred in connection with Practice Plans,
including without limitation the compensation of counsel, accountants,
corporate trustees, and other agents shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
(e) The contribution and administration expenses for the
Orthodontist, Orthodontic Entity Professional Employees (which are not
expenses payable by the AOI Plans or by the participants in the AOI
Plans) shall be included in Orthodontist's operating budget.
Orthodontist and AOI shall not make employee benefit plan contributions
or payments for their respective employees in excess of such budgeted
amounts unless required by law or the terms of the AOI Plans. AOI shall
make contributions or payments with respect to the AOI Plans on behalf
of eligible Orthodontic Entity Professional Employees and Orthodontic
Entity Employees and those contributions or payments shall be treated as
Orthodontic Entity and Orthodontist Expenses, Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses as elsewhere provided in
this Agreement.
(f) AOI shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its
employees and employees of other entities aggregated with AOI pursuant
to Section 414(b), (c), (m) (o) of the Code.
SECTION 4.9 PEER REVIEW. Orthodontist and the Orthodontic Entity agree
to cooperate with Apple in establishing a system of peer review within and among
the orthodontic practices associated with Apple or its Affiliates. In connection
therewith, Orthodontist and the Orthodontic Entity agree to assist in the
formulation of orthodontic provider guidelines for each treatment or modality.
SECTION 4.10 ADDITIONAL ORTHODONTISTS. The Orthodontic Entity and
Orthodontist shall require, as a condition to an additional orthodontist
becoming a shareholder of the Orthodontic Entity, that such shareholder execute
an agreement in form and substance similar to this Agreement or become a party
to this Agreement by amendment hereto.
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ARTICLE V
RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by Apple
hereunder shall be feasible only if the Orthodontic Entity and Orthodontist
operate an active orthodontic practice to which the orthodontists associated
with the Orthodontic Entity devote their full business time and attention.
Accordingly, the parties hereto agree as follows:
SECTION 5.1 RESTRICTIVE COVENANTS BY THE ORTHODONTIC ENTITY.
(a) During the term of this Agreement and for a period of two
years after termination of this Agreement for any reason other than
pursuant to SECTION hereof, the Orthodontic Entity shall not without the
prior written consent of Apple (i) establish, operate or provide
orthodontic services at any orthodontic office, clinic or other health
care facility providing services similar to those provided by the
Orthodontic Entity, or (ii) engage or participate in any business which
engages in competition with the business conducted by AOI Group; in
either case anywhere within __ miles of any Premises.
(b) The Orthodontic Entity agrees that in the event of a breach
of SECTION above, the Orthodontic Entity shall pay to Apple an amount
equal to the greater
of (i) $200,000, and (ii) an amount equal to the gross cash receipts of
the Orthodontic Entity for the preceding twelve (12) months.
(c) The Orthodontic Entity agrees that the noncompetition
restrictions set forth in this Agreement are reasonable as to time and
geographic area.
SECTION 5.2 RESTRICTIVE COVENANTS OF ORTHODONTIST.
(a) Orthodontist agrees and acknowledges that, until the later of
(i) the expiration of the fifth anniversary of the date of this
Agreement, or (ii) five years from the date Orthodontist becomes a
shareholder of the Orthodontic Entity, Orthodontist will devote
Orthodontist's full business time and attention to rendering
professional services on behalf of the Orthodontic Entity and in
furtherance of the Orthodontic Entity's best interest.
(b) Orthodontist hereby agrees that during the period set forth
in SECTION above and for a period of two (2) years after the
termination of this Agreement
for any reason other than termination of this Agreement as to the
Orthodontist pursuant to SECTION hereof, Orthodontist will not (i)
directly or indirectly establish, operate or provide orthodontist
services at any orthodontic office, clinic or other facility providing
services similar to those provided by the Orthodontic Entity or engage
or participate in or finance any business which engages in direct
competition with the business being conducted by AOI Group, in either
case, anywhere within __ miles of any Premises, (ii) directly or
indirectly compete with the Orthodontic Entity or member of the AOI
Group in any way, (iii) act as an officer, director, employee,
consultant, shareholder, lender, guarantor or agent of, or otherwise
assist any entity which is engaged in any
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business of the same nature as, or in direct competition with, the
business in which the AOI Group is now engaged or other business in
which the AOI Group becomes engaged, or (iv) induce or attempt to
influence any employee of the AOI Group to terminate his or her
employment, or to hire any such employee, whether or not so induced or
influenced, except that any such employee may be hired with the prior
written consent of AOI.
(c) Orthodontist agrees that in the event of a breach of SECTION
above, Orthodontist shall pay to Apple an amount equal to the greater of
(i) $200,000, and (ii) an amount equal to the gross cash receipts of the
Orthodontic Entity for the preceding twelve (12) months.
(d) Orthodontist agrees that in the event of a breach of SECTION
above, Orthodontist shall pay to Apple an amount equal to the greater of
(i) $200,000, and (ii) an amount equal to the gross cash receipts of the
Orthodontic Entity for the preceding twelve (12) months.
(e) Orthodontist acknowledges and recognizes that enforcement of
SECTIONS and above by Apple will not interfere with Orthodontist's
ability to pursue a proper livelihood. Orthodontist agrees that the
noncompetition restrictions set forth in this Agreement are reasonable
as to time and geographic area.
Notwithstanding the foregoing, however, this SECTION shall not prohibit
Orthodontist or any of his or her Affiliates (including the Orthodontic
Entity) from purchasing or holding an aggregate publicly traded equity
interest of up to 2%, so long as Orthodontist and his or her affiliates
(including the Orthodontic Entity and the other orthodontist owning an
equity interest in the Orthodontic Entity) do not purchase or hold an
aggregate equity interest of more than 5% in any business in direct
competition with the AOI Group.
SECTION 5.3 ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. The Orthodontic
Entity and Orthodontist recognize the proprietary interest of AOI Group in any
Confidential and Proprietary Information (as hereinafter defined) of AOI Group.
The Orthodontic Entity and Orthodontist acknowledge and agree that any and all
Confidential and Proprietary Information communicated to, learned of, developed
or otherwise acquired by the Orthodontic Entity and Orthodontist during the term
of this Agreement shall be the property of AOI Group. The Orthodontic Entity and
Orthodontist further acknowledge and understand that their disclosure of any
Confidential and Proprietary Information will result in irreparable injury and
damage to AOI Group. As used herein, "Confidential and Proprietary Information"
means all trade secrets and other confidential and/or proprietary information of
AOI Group, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, financial projections,
cost summaries, pricing formula, contracts analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than the Orthodontic Entity's and Orthodontist's original
patient records) prepared or performed for, by or on behalf of AOI Group by its
employees, officers, directors, agents, representatives, or consultants.
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SECTION 5.4 COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY
INFORMATION. The Orthodontic Entity and Orthodontist acknowledge and agree that
AOI Group is entitled to prevent the disclosure of Confidential and Proprietary
Information. The Orthodontic Entity and Orthodontist agree at all times during
the term of this Agreement and thereafter to hold in strictest confidence and
not to disclose to any person, firm or corporation, other than to Orthodontic
Entity Professional Employees and persons engaged by Apple to further the
business of the Orthodontic Entity, and not to use except in the pursuit of the
business of AOI Group, Confidential and Proprietary Information, without the
prior written consent of Apple; unless (i) such information becomes known or
available to the public generally through no wrongful act of the Orthodontic
Entity or Orthodontist or its employees, (ii) disclosure is required by law or
the rule, regulation or order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential and Proprietary Information
pursuant to this clause (ii), the Orthodontic Entity and Orthodontist shall, if
possible, give prior written notice thereof to Apple and provide Apple with the
opportunity to contest such disclosure, or (iii) the Orthodontic Entity and
Orthodontist reasonably believe that such disclosure is required in connection
with a lawsuit to which the Orthodontic Entity or Orthodontist is a party.
SECTION 5.5 RETURN OF MATERIALS TO APPLE. In the event of any
termination of this Agreement for any reason whatsoever, or at any time upon the
request of Apple, the Orthodontic Entity or the Orthodontist for whom the
termination is applicable will promptly deliver to Apple all documents, data and
other information in the Orthodontic Entity's or Orthodontist's possession that
contains any Confidential and Proprietary Information. The Orthodontic Entity
and Orthodontist shall not take or retain any documents or other information, or
any reproduction or excerpt thereof, containing any Confidential and Proprietary
Information, unless otherwise authorized in writing by Apple.
SECTION 5.6 [INTENTIONALLY DELETED].
SECTION 5.7 RESTRICTIVE COVENANTS OF ORTHODONTIC ENTITY PROFESSIONAL
EMPLOYEES. Each Orthodontic Entity Professional Employment Agreement contains
certain restrictive covenants thereof pertaining to covenants not to compete
with and not to divulge the confidential and proprietary information of Apple,
Orthodontist and the Orthodontic Entity. During the term of this Agreement, the
Orthodontic Entity and Orthodontist shall obtain written agreements which
contain restrictive covenants in substantially the same form from each
Orthodontic Entity Professional Employee (other than Orthodontic Entity
Employees) associated with the Orthodontic Entity or Orthodontist after the date
hereof. Except with respect to sections of the Orthodontic Entity Professional
Employment Agreements pertaining to matters of compensation, during the term of
this Agreement, the Orthodontic Entity and Orthodontist shall not amend, alter
or otherwise change any term or provision of any Orthodontic Entity Professional
Employment Agreement without the prior written consent of AOI, which consent
shall not be unreasonably withheld. Following termination of this Agreement, the
Orthodontic Entity and Orthodontist shall not amend, alter or otherwise change
any term or provision of the restrictive covenants contained in such Orthodontic
Entity Professional Employment Agreement unless such provisions are no longer in
force and effect pursuant to the terms of the applicable agreement at the time
of termination of this Agreement.
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SECTION 5.8 RESTRICTIVE COVENANTS OF APPLE. Apple hereby agrees
that during the term of this Agreement, it will not engage or participate in or
finance any orthodontist's practice (whether through the acquisition of another
existing orthodontic practice, affiliation with another orthodontist or the
opening of a satellite office) anywhere within _____ miles of any location from
which the Orthodontic Entity provides orthodontic services to patients on the
date hereof (each an "Orthodontic Entity Location") without the prior written
consent of the Orthodontist.
SECTION 5.9 REMEDIES. Apple, Orthodontist and the Orthodontic Entity
acknowledge and agree that a remedy at law for any breach or attempted breach of
the provisions of this ARTICLE shall be inadequate, and therefore, either party
shall be entitled to specific performance and injunctive or other equitable
relief in the event of any such breach or attempted breach, in addition to any
other rights or remedies available to either party at law or in equity. Each
party hereto waives any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
If any provision of the restrictive covenants contained in the Orthodontic
Entity Professional Employment Agreements or this ARTICLE relating to the
restrictive period, scope of activity restricted and/or the territory described
therein shall be declared by a court of competent jurisdiction to exceed the
maximum time period, scope of activity restricted or geographical area such
court deems reasonable and enforceable under applicable law, the time period,
scope of activity restricted and/or area of restriction held reasonable and
enforceable by the court shall thereafter be the restrictive period, scope of
activity restricted and/or the territory applicable to such provision of the
restrictive covenants or this ARTICLE . The invalidity or non-enforceability of
any provision of the restrictive covenants or this ARTICLE in any respect shall
not affect the validity or enforceability of the remainder of the restrictive
covenants or this ARTICLE or of any other provisions of this Agreement.
ARTICLE VI
FINANCIAL AND SECURITY ARRANGEMENTS
The Orthodontic Entity and Apple agree that the compensation set forth
in this ARTICLE is being paid to Apple in consideration of the services provided
and the substantial commitment and effort made by Apple hereunder and that such
fees have been negotiated at arm's length, and are fair and reasonable and
consistent with fair market value.
SECTION 6.1 SERVICE FEES. Apple shall charge the Orthodontic Entity for
services on a monthly basis an amount equal to the sum of the following:
(a) Apple shall receive a base annual fee (the "Base Fee") equal to
thirteen and one-half percent (13.5%) of Orthodontic Entity's and Orthodontist's
gross revenues received from patients for orthodontic services provided ("Cash
Receipts").
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(b) Each month Apple shall be reimbursed for the amount of all
Orthodontic Entity and Orthodontist Expenses and all Excluded Orthodontic Entity
and Orthodontist Expenses recorded by Apple in accordance with the terms of this
Agreement.
SECTION 6.2 EXCLUDED EXPENSES. Any amounts reimbursed to Apple under
Section 6.1(c) shall be available to reduce amounts due to Apple in future
months to the extent the Net Operating Amount for such future month exceeds 45%
of the Orthodontic Entity's and Orthodontist's Cash Receipts so long as the
applicable month to which this Section 6.2 applies is within the same calendar
year as the month in which the obligation to reimburse Apple for amounts under
Section 6.1(c) arose.
SECTION 6.3 WORKING CAPITAL LOANS. As part of the services provided by
Apple hereunder, Apple may make available loans to assist the Orthodontic Entity
in maintaining reasonable cash flow for the payment of Excluded Orthodontic
Entity and Orthodontist Expenses.
(a) Initial Working Capital. Apple shall make available to the
Orthodontic Entity an interest free line of credit ("Initial Working Capital
Line") for the initial working capital needs of the Orthodontic Entity, up to a
maximum amount equal to the reduction in Net Operating Amount attributable to
changes in patient payment schedules. The Orthodontic Entity shall be entitled
to draw funds from the Initial Working Capital Line up until six (6) months
after the Acquisition Closing Date ("Loan Termination Date"). The amount, if
any, of the Initial Working Capital Line outstanding on the Loan Termination
Date shall be repaid, in equal monthly installments (without interest) over a
two-year period commencing on the Loan Termination Date.
(b) Subsequent Working Capital. Apple may make available to the
Orthodontic Entity loans for subsequent working capital requirements in amounts
not to exceed Excluded Orthodontic Entity and Orthodontic Expenses. Such loans
shall accrue interest beginning on the day of the advance at an interest rate
equal to the prime rate then in effect, plus 1%. The loans, if any, shall be
repaid to Apple out of the Net Operating Amount generated in subsequent months
and become immediately due and payable if the Orthodontist terminates his
employment with the Orthodontic Entity, for any reason.
Any principle or interest paid to Apple by the Orthodontic Entity
pursuant to Sections 6.3(a) or 6.3(b) are Excluded Orthodontic Entity and
Orthodontist Expenses.
SECTION 6.4 SECURITY AGREEMENT. To secure their obligations hereunder,
the Orthodontic Entity and Orthodontist shall execute a Security Agreement in
substantially the form attached hereto as EXHIBIT 6.4 (the "Security
Agreement"), which Security Agreement grants a security interest in all of the
Orthodontic Entity's and Orthodontist's accounts receivable (as more fully
described in the Security Agreement) to Apple. In addition, the Orthodontic
Entity and Orthodontist shall cooperate with Apple and execute all necessary
documents in connection with the pledge of such accounts receivable to Apple or
at Apple's option, its lenders. All
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collections in respect of such accounts receivable shall be deposited in a bank
account at a bank designated by Apple. To the extent that the Orthodontic Entity
or Orthodontist comes into possession of any payments in respect of such
accounts receivable, the Orthodontic Entity or Orthodontist shall promptly remit
such payments to Apple.
ARTICLE VII
RECORDS
SECTION 7.1 RECORDS OWNED BY APPLE. All records (other than patients'
orthodontic records) relating in any way to the operation of the Orthodontic
Entity shall at all times be the property of Apple. During the term of, and upon
termination, of this Agreement, to the extent permitted by law, and expressly
acknowledging the confidential nature of same, Apple shall be entitled to have
access to and copy and retain such copies of patient orthodontic records.
SECTION 7.2 ACCESS TO RECORDS. During the term of this Agreement, and
for a reasonable time thereafter, the Orthodontic Entity and Orthodontists or
their respective agents shall have reasonable access during normal business
hours to the Orthodontic Entity's and Apple's financial records, including, but
not limited to, records of collections, expenses and disbursement as kept by
Apple in performing Apple's obligations under this Agreement, and the
Orthodontic Entity and Orthodontist may copy any or all such records.
ARTICLE VIII
INSURANCE AND INDEMNITY
SECTION 8.1 INSURANCE TO BE MAINTAINED BY THE ORTHODONTIC ENTITY AND
ORTHODONTIST. During the term of this Agreement, the Orthodontic Entity and
Orthodontist shall maintain comprehensive professional liability insurance with
such carrier as determined jointly by Apple and the Orthodontic Entity, with
limits of not less than $1,000,000 per claim and with aggregate policy limits of
not less than $3,000,000 per orthodontist and a separate limit for the
Orthodontic Entity (each such amount being subject to adjustment every three
years based on cost of living increases during any such period) with such
deductible as is mutually agreeable by Apple and the Orthodontic Entity. All
malpractice premiums and deductibles related thereto that are paid by Apple
shall be included in Orthodontic Entity and Orthodontist Expenses. All costs,
expenses and liabilities incurred by Orthodontic Entity, Orthodontist or Apple
in excess of the limits of such policies shall be included in Excluded
Orthodontic Entity and Orthodontist Expenses. Apple shall have the option of
providing such professional liability insurance through an alternative program,
provided such program meets the requirements of the Insurance Commissioner of
the State of California. If Orthodontist's existing professional liability
insurance program is cancelled and replaced by a professional liability
insurance program initiated by Apple, Apple shall pay over to Orthodontist any
unearned professional liability insurance premiums paid by Orthodontist to the
extent Orthodontist's carrier pays such amounts to Apple.
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SECTION 8.2 INSURANCE TO BE MAINTAINED BY APPLE. During the term of this
Agreement, Apple will use reasonable efforts to provide and maintain, as a
Orthodontic Entity and Orthodontist Expense, comprehensive professional
liability insurance for all professional employees of Apple, and comprehensive
general liability and property insurance covering the Orthodontic Entity
premises and operations with such limits as determined reasonable and
appropriate by Apple and after obtaining the Orthodontic Entity's approval to
purchase any such insurance.
SECTION 8.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Orthodontic
Entity and Orthodontist shall obtain or require each of Orthodontist and their
Orthodontic Entity Professional Employees to obtain continuing liability
insurance coverage under either a "tail policy" or a "prior acts policy," with
the same limits and deductibles as the insurance coverage provided pursuant to
SECTION for each orthodontist associated with the Orthodontic Entity upon the
termination of such orthodontist's relationship with the Orthodontic Entity for
any reason. In the event that neither the Orthodontic Entity, Orthodontist nor
the Orthodontic Entity Professional Employees obtains such continuing liability
insurance coverage, Apple may do so. The costs of continuing liability insurance
coverage shall be included in Orthodontic Entity and Orthodontist Expenses
unless such cost is borne by Orthodontist or the Orthodontic Entity Professional
Employee.
SECTION 8.4 ADDITIONAL INSUREDS. The Orthodontic Entity, Orthodontist
and Apple agree to use their reasonable efforts to have each other named as an
additional insured on the other's respective professional liability insurance
programs. The additional cost, if any, associated therewith shall be paid by
Apple and shall be a Orthodontic Entity and Orthodontist Expense.
SECTION 8.5 INDEMNIFICATION. To the extent permitted under insurance
policies in place on the date hereof or policies to be entered into with
insurers acceptable to Apple, the Orthodontic Entity and Orthodontist, jointly
and severally, shall indemnify, defend and hold Apple, its officers, directors,
stockholders, employees, agents and consultants (other than such persons who are
also officers, directors, shareholders, employees, agents or consultants of the
Orthodontic Entity) harmless, from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees), whether or not covered by insurance (including self-insured insurance and
reserves), whenever arising or incurred, that are 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 Orthodontist, the Orthodontic Entity and/or its shareholders,
agents, employees and/or subcontractors (other than Apple) during the term of
this Agreement. Apple shall indemnify, defend and hold Orthodontist and the
Orthodontic Entity, its officers, shareholders, directors, employees, agents and
consultants, harmless from and against any and all liabilities, losses, damages,
claims, causes of action and expenses (including reasonable attorneys' fees),
whether or not covered by insurance (including self-insured insurance and
reserves) that are 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 Apple and/or its stockholders, agents, employees
and/or subcontractors (other than the Orthodontic Entity) during the term of
this Agreement.
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ARTICLE IX
TERM AND TERMINATION
SECTION 9.1 TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the 20th anniversary hereof unless earlier terminated
pursuant to the terms of either SECTION or SECTION or automatically extended
pursuant to the terms of SECTION .
SECTION 9.2 EXTENDED TERM. Unless earlier terminated as provided for in
either SECTION or SECTION , the term of this Agreement shall be automatically
extended for additional terms of five (5) years each, unless either party
delivers to the other party, not less than twelve (12) months nor earlier than
fifteen (15) months prior to the expiration of the preceding term, written
notice of such party's intention not to extend the term of this Agreement.
SECTION 9.3 TERMINATION BY THE ORTHODONTIC ENTITY AND ORTHODONTIST. The
Orthodontic Entity or Orthodontist may terminate this Agreement with respect to
such party by giving written notice thereof to Apple (after the giving of any
required notices and the expiration of any applicable waiting periods set forth
below) upon the occurrence of any the following events:
(a) Apple or AOI shall admit in writing its inability to
generally pay its debts when due, apply for or consent to the
appointment of a trustee, receiver or liquidator of all or substantially
all of its assets, file a petition in voluntary bankruptcy or make an
assignment for the benefit of creditors, or upon other action taken or
suffered by Apple, voluntarily or involuntarily, under any federal or
state law for the benefit of debtors, except for the filing of a
petition in involuntary bankruptcy against Apple or AOI, as the case may
be, which is dismissed within sixty (60) days thereafter.
(b) Apple or AOI shall default in the performance of any material
duty or material obligation imposed upon it by this Agreement and such
default shall continue for a period of forty-five (45) days after
written notice thereof has been given to Apple by the Orthodontic Entity
or Orthodontist, provided that the Orthodontic Entity may terminate this
Agreement, if and only if, such termination shall have been approved by
the affirmative vote of the holders of two-thirds of the interests of
the shareholders of the Orthodontic Entity.
SECTION 9.4 TERMINATION BY APPLE. Apple may terminate this Agreement in
its entirety or with respect to the Orthodontic Entity or Orthodontist by giving
written notice thereof to the Orthodontic Entity and Orthodontist (after the
giving of any required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any the following events:
(a) The Orthodontic Entity or Orthodontist shall admit in writing
its inability to generally pay its debts when due, apply for or consent
to the appointment of a trustee, receiver or liquidator of all or
substantially all of its assets, file a petition in voluntary
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bankruptcy or make an assignment for the benefit of creditors, or upon
other action taken or suffered by the Orthodontic Entity, voluntarily or
involuntarily, under any federal or state law for the benefit of
debtors, except for the filing of a petition in involuntary bankruptcy
against the Orthodontic Entity or Orthodontist which is dismissed within
sixty (60) days thereafter.
(b) The Orthodontic Entity or Orthodontist shall default in the
performance of any material duty or material obligation imposed upon it
by this Agreement and such default shall continue for a period of ninety
(90) days after written notice thereof has been given to the Orthodontic
Entity or Orthodontist by Apple.
(c) The Orthodontic Entity, Orthodontist or any Orthodontic
Entity Professional Employee (i) engages in any conduct for which the
Orthodontist's or such Orthodontic Entity Professional Employee's
license to practice orthodontics is revoked or suspended, or (ii) is the
subject of any restrictions or limitations by any governmental authority
to such an extent that he, she or it cannot engage in the practice of
orthodontics.
(d) With respect to Orthodontist, Orthodontist shall become
Disabled and Apple shall give notice of termination to Orthodontist's
estate within ninety (90) days of the date Apple becomes aware of such
Disability.
(e) With respect to Orthodontist, Orthodontist shall die.
SECTION 9.5 TERMINATION BY ORTHODONTIST.
(a) This Agreement shall terminate with respect to Orthodontist
in the event of a voluntary termination by the Orthodontist of his
Orthodontic Entity Professional Employment Agreement after the five (5)
year period set forth in SECTION ; provided, however, that Orthodontist
shall give Apple at least one (1) year notice of such voluntary
termination. In the event termination with respect to the Orthodontist
in accordance with this SECTION , the restrictive covenants contained in
SECTION shall apply with respect to Orthodontist for two (2) years
following the effective date of such termination and not for the term of
this Agreement.
(b) This Agreement (including the restrictive covenants in
Section ) shall terminate with respect to the Orthodontist in the event
(i) of the imposition (by a final, unappealable order) of any
restrictions or limitations by any governmental authority having
jurisdiction over the Orthodontist to such an extent that he cannot
engage in the professional practice of orthodontics for the five-year
period set forth in Section and (ii) this Agreement cannot be reformed
pursuant to Section or Section hereof to the extent necessary to render
such order inapplicable.
SECTION 9.6 EFFECTIVE DATE OF TERMINATION. Any termination of this
Agreement shall be effective (the "Termination Date") as follows:
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(a) Immediately upon receipt of a termination notice pursuant to
either SECTION or SECTION ;
(b) Upon the expiration of this Agreement pursuant to SECTIONS
and ; or
(c) If terminated for any reason other than as set forth in the
immediately preceding clauses (a) and (b), as of the Purchase Closing.
SECTION 9.7 PURCHASE OF ASSETS. Upon expiration or termination of this
Agreement for any reason other than pursuant to SECTION (D), SECTION (E) or
SECTION hereof, the Orthodontic Entity shall have the option to, and Apple shall
have the option to require the Orthodontic Entity to,:
(a) Purchase from Apple at Fair Market Value all tangible assets
of Apple or its Affiliates that relate primarily to the Orthodontic
Entity other than Apple's accounting and financial records and other
records and files relating to the operation of the Orthodontic Entity
(the "Purchase Assets"), including, but not limited to, (i) all tangible
assets set forth on Apple's balance sheet as of the Termination Date
relating primarily to the Orthodontic Entity, (ii) all equipment,
furniture, fixtures, furnishings, inventory, supplies, improvements,
additions and leasehold improvements utilized by the Orthodontic Entity,
and (iii) any real estate owned by Apple or an Affiliate that is
exclusively associated with the Orthodontic Entity; and
(b) Assume all liabilities, debt, payables and other obligations
(including lease and other contractual obligations) of Apple and any of
its Affiliates which relate exclusively to the Orthodontic Entity or to
the performance of Apple's obligations under this Agreement (the
"Orthodontic Entity Related Liabilities").
The Orthodontic Entity shall be able to exercise its option under this Section
(unless this Agreement is terminated pursuant to SECTION ) and Apple shall be
able to exercise its option under this Section (unless this Agreement is
terminated pursuant to SECTION ) by giving written notice thereof in the
Termination Notice, if applicable, or prior to ninety (90) days before the
Termination Date if this Agreement is terminated pursuant to SECTIONS and . In
connection with the purchase and sale of the Purchase Assets pursuant to this
SECTION , Apple shall cause the Purchase Assets to be conveyed free of any lien,
claim or encumbrance, other than those arising out of the Orthodontic Entity
Related Liabilities.
SECTION 9.8 TERMS OF PURCHASE. The closing of the transactions
contemplated by SECTION (the "Purchase Closing") shall occur (a) on the
Termination Date if this Agreement expires pursuant to the terms of SECTIONS and
, or (b) on a date mutually acceptable to the parties hereto that shall be
within 180 days of receipt of a termination notice by the applicable party
pursuant to either SECTION or . Subject to the conditions set forth below, at
the Purchase Closing, Apple shall transfer and assign the Purchase Assets to the
Orthodontic Entity, and in consideration therefor, the Orthodontic Entity shall
(a) pay to Apple an amount in cash equal to the Fair Market Value of the
Purchase Assets as of the Purchase Closing and (b) assume the Orthodontic Entity
Related Liabilities. Each party shall execute such documents
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or instruments as is reasonably necessary, in the opinion of each party and its
counsel, to effect the foregoing transaction. The Orthodontic Entity shall, and
shall use its best efforts to cause each shareholder of the Orthodontic Entity
to, execute such documents or instruments as may be necessary to cause the
Orthodontic Entity to assume the Orthodontic Entity Related Liabilities and to
release Apple from any liability or obligation with respect thereto.
SECTION 9.9 EXCEPTION TO PURCHASE. Notwithstanding anything contained
herein to the contrary, Apple shall not be obligated to sell the Purchase Assets
to the Orthodontic Entity if the Orthodontic Entity is not able to pay the
Purchase Price in cash and assume the Orthodontic Entity Related Liabilities at
the Purchase Closing. In such event, the Orthodontic Entity shall surrender the
Purchase Assets to Apple as of the Purchase Closing. If the Orthodontic Entity
fails to so surrender the Purchase Assets, Apple may, without prejudice to any
other remedy which it may have hereunder or otherwise, enter the Premises and
take possession of the Purchase Assets and expel or remove the Orthodontic
Entity and any other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor.
SECTION 9.10 EFFECT UPON TERMINATION. Upon the Termination Date, this
Agreement shall terminate and shall be of no further force and effect; provided,
however:
(a) Apple shall use its best efforts to cooperate with the
Orthodontic Entity and Orthodontist for the appropriate transfer of
management services.
(b) Each party hereto shall provide the other party with
reasonable access to books and records owned by it to permit such
requesting party to satisfy reporting and contractual obligations which
may be required of it.
(c) On the Termination Date, any amounts due and owing but unpaid
to either Apple or the Orthodontic Entity (including, without
limitation, any amounts due under the Initial Working Capital Line) as
of the Termination Date shall be paid promptly by the appropriate party.
(d) Any and all covenants and obligations of either party hereto
which by their terms or by reasonable implication are to be performed,
in whole or in part, after the termination of this Agreement, shall
survive such termination, including, without limitation, the obligations
of the parties pursuant to the following Sections: 4.5, 4.7, 5.1, 5.2,
5.4, 5.5, 5.6, 5.7, 5.8, 6.4, 7.2, 8.5, 9.8, 9.10 and the applicable
provisions of ARTICLE X .
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 ASSIGNMENT. Apple shall have the right to assign its rights
hereunder to AOI or any direct or indirect wholly owned subsidiary of Apple. The
Orthodontic Entity and Orthodontist hereby agree that Apple has the right to
grant a security interest in its rights
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hereunder to any lending institution from which Apple or the AOI obtains
financing. The Orthodontic Entity and Orthodontist shall not have the right to
assign their rights or obligations hereunder (i) to any person who is not a
graduate of an accredited orthodontic program or (ii) to any person who is a
graduate of an accredited orthodontic program without the prior written consent
of Apple, which consent shall not be unreasonably withheld. In the event the
parties are unable to agree upon the reasonableness of any such assignment, then
each of Apple and the Orthodontist shall each promptly thereafter select an
arbitrator and Apple and the Orthodontist shall each give prompt notice to the
other of such appointment in writing. The two arbitrators first appointed under
the terms hereof shall, within five (5) days after receipt of notification of
selection, together select a third arbitrator. The decision of the majority of
arbitrators so appointed shall be final and binding upon the parties hereto and
may be enforced in any court of competent jurisdiction. The expense of the
arbitrators appointed by each party shall be borne by the party appointing such
arbitrator, and the expense of the third arbitrator shall be borne by both
parties equally. The arbitrators shall give prompt notice in writing of their
decision to each party.
SECTION 10.2 AMENDMENTS. This Agreement shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modification(s) or amendment(s) shall be attached hereto.
SECTION 10.3 WAIVER OF PROVISIONS. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
SECTION 10.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
SECTION 10.5 ATTORNEYS' FEES. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 10.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decision, a
regulatory agency or legal counsel in such a manner as to indicate that this
Agreement or any provision hereof may be in violation of such laws or
regulations, the Orthodontic Entity, Orthodontist and Apple shall amend this
Agreement as necessary to preserve the underlying economic and financial
arrangements between the Orthodontic Entity, Orthodontist and Apple and without
substantial economic detriment to either party. To the extent any act or service
required of Apple in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of
orthodontics, the performance of said act or service by Apple shall be deemed
waived and forever unenforceable and the provisions of this SECTION shall be
applicable. Neither party shall claim or assert illegality as a defense to the
enforcement of this Agreement or any provision hereof; instead, any such
purported illegality shall be resolved pursuant to the terms of this SECTION and
SECTION . In the event any governmental authority, agency or
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court institutes proceedings against Apple, the Orthodontic Entity or the
Orthodontist challenging the legality, validity or enforceability of any
provision of this Agreement, Apple agrees that the fees, expenses and
disbursements of counsel engaged to represent Apple, the Orthodontic Entity and
the Orthodontist shall be Apple Expenses.
SECTION 10.7 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
SECTION 10.8 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 10.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE PERFORMABLE IN CALIFORNIA.
SECTION 10.11 NO WAIVER; REMEDIES CUMULATIVE. Apple shall not by any act
(except by written instrument pursuant to SECTION hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default in or breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of Apple, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. 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.
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SECTION 10.12 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. 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.
SECTION 10.13 COMMUNICATIONS. The Orthodontic Entity, Orthodontist and
Apple agree that good communication between the parties is essential to the
successful performance of this Agreement, and each pledges to communicate fully
and clearly with the other on matters relating to the successful operation of
the Orthodontic Entity and the practice of orthodontics by Orthodontist.
SECTION 10.14 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 10.15 GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 10.16 REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 10.17 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Apple: Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Fax No.: (713) 964-6883
Attn: H. Steven Walton
with a copy to: Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Fax No.: (713) 752-4221
Attn: Richard S. Roth
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If to the Orthodontic Entity:
with a copy to:
SECTION 10.18 CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize upon
any final court judgment arising out of this Agreement), such suit, action or
proceeding shall be instituted only in a state or federal court in Houston,
Texas. Each of the parties hereto consents to the IN PERSONAM jurisdiction of
any state or federal court in Houston, Texas and waives any objection to the
venue of any such suit, action or proceeding. The parties hereto recognize that
courts outside Houston, Texas may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Houston, Texas, the party instituting such proceeding shall indemnify
any other party hereto for any losses and expenses that may result from the
breach of the foregoing covenant to institute such proceeding only in a state or
federal court in Houston, Texas, including without limitation any additional
expenses incurred as a result of litigating in another jurisdiction, such as
reasonable fees and expenses of local counsel and travel and lodging expenses
for parties, witnesses, experts and support personnel.
SECTION 10.19 SERVICE OF PROCESS. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
SECTION and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
SECTION 10.20 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 10.21 DEFINED TERMS. Terms used in the Exhibits attached hereto
with their initial letter capitalized and not otherwise defined therein shall
have the meanings assigned to such terms in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Orthodontic Entity:
_______________________________________
By:_______________________
Title:____________________
Orthodontist:
_____________________________________
___________________________, D.D.S.
Apple:
APPLE ORTHODONTIX, INC.
By:_______________________________
Title:____________________________
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LIST OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
1.1(u) Orthodontic Entity Professional Employment Agreements
6.4 Form of Security Agreement
<PAGE>
EXHIBIT 1.1(U)
to the
Service Agreement dated _______________________, 1997
by and between
-------------------------------
and
-------------------------------------------
ORTHODONTIC ENTITY PROFESSIONAL EMPLOYMENT AGREEMENTS
<PAGE>
EXHIBIT 6.4
to the
Service Agreement dated _______________________, 1997
by and between
-------------------------------
and
-------------------------------------------
FORM OF SECURITY AGREEMENT
EXHIBIT 10.8
- --------------------------------------------------------------------------------
FORM OF SERVICE AGREEMENT
DATED AS OF THE ____ DAY OF ________________, 1997
BY AND BETWEEN
APPLE ORTHODONTIX, INC.
-------------------------------------, D.D.S.
AND
---------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I.................................................................. 1
Definitions.......................................................... 1
Section 1.1 Definitions........................................ 1
ARTICLE II................................................................. 6
Relationship of the Parties.......................................... 6
ARTICLE III................................................................ 6
Services to be Provided by Apple..................................... 6
Section 3.1 Overall Function................................... 6
Section 3.2 General Administrative Services. .................. 7
Section 3.3 Facilities......................................... 9
Section 3.4 Acquisition and Assistance......................... 10
Section 3.5 Inventory and Supplies............................. 10
Section 3.6 Advertising and Public Relations................... 10
Section 3.7 Personnel.......................................... 10
Section 3.8 Quality Assurance.................................. 11
Section 3.9 Other Consulting and Advisory Services............. 11
ARTICLE IV................................................................. 11
Obligations of the Orthodontic Entity and Orthodontist............... 11
Section 4.1 Employment of Orthodontist Employees............... 11
Section 4.2 Professional Services.............................. 12
Section 4.3 Orthodontic Practice............................... 12
Section 4.4 Orthodontic Entity's and Orthodontist's
Internal Matters................................... 13
Section 4.5 Compliance with Laws............................... 13
Section 4.6 Ancillary Services................................. 14
Section 4.7 Premises and Personal Property..................... 14
Section 4.8 Orthodontic Entity Employee Benefit Plans.......... 14
Section 4.9 Peer Review........................................ 15
Section 4.10 Additional Orthodontists.......................... 15
ARTICLE V.................................................................. 16
Restrictive Covenants and Liquidated Damages......................... 16
Section 5.1 Restrictive Covenants by the Orthodontic Entity.... 16
Section 5.2 Restrictive Covenants of Orthodontist.............. 16
Section 5.3 Acknowledgement of Proprietary Interest............ 17
Section 5.4 Covenant Not-to-Divulge Confidential and
Proprietary Information............................ 18
Section 5.5 Return of Materials to Apple....................... 18
Section 5.6 [INTENTIONALLY DELETED]............................ 18
Section 5.7 Restrictive Covenants of Orthodontic Entity
Professional Employees............................. 18
Section 5.8 RESTRICTIVE COVENANTS OF APPLE..................... 19
Section 5.9 Remedies........................................... 19
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ARTICLE VI................................................................. 19
Financial and Security Arrangements.................................. 19
Section 6.1 Service Fees...................................... 19
Section 6.2 Excluded Expenses.................................. 20
Section 6.3 Working Capital Loans.............................. 20
Section 6.4 Security Agreement................................. 21
ARTICLE VII................................................................ 21
Records.............................................................. 21
Section 7.1 Records Owned by Apple............................. 21
Section 7.2 Access to Records.................................. 21
ARTICLE VIII............................................................... 21
Insurance and Indemnity.............................................. 21
Section 8.1 Insurance to be Maintained by the Orthodontic
Entity and Orthodontist............................ 21
Section 8.2 Insurance to be Maintained by Apple................ 22
Section 8.3 Continuing Liability Insurance Coverage............ 22
Section 8.4 Additional Insureds................................ 22
Section 8.5 Indemnification.................................... 22
ARTICLE IX................................................................. 23
Term and Termination................................................. 23
Section 9.1 Term of Agreement.................................. 23
Section 9.2 Extended Term...................................... 23
Section 9.3 Termination by the Orthodontic Entity and
Orthodontist....................................... 23
Section 9.4 Termination by Apple............................... 24
Section 9.5 Termination by Orthodontist........................ 24
Section 9.6 Effective Date of Termination...................... 25
Section 9.7 Purchase of Assets................................. 25
Section 9.8 Terms of Purchase.................................. 26
Section 9.9 Exception to Purchase.............................. 26
Section 9.10 Effect Upon Termination........................... 26
ARTICLE X.................................................................. 27
General Provisions................................................... 27
Section 10.1 Assignment........................................ 27
Section 10.2 Amendments........................................ 27
Section 10.3 Waiver of Provisions.............................. 27
Section 10.4 Additional Documents.............................. 27
Section 10.5 Attorneys' Fees................................... 27
Section 10.6 Contract Modifications for Prospective
Legal Events...................................... 28
Section 10.7 Parties In Interest; No Third-Party Beneficiaries. 28
Section 10.8 Entire Agreement.................................. 28
Section 10.9 Severability...................................... 28
Section 10.10 Governing Law.................................... 28
Section 10.11 No Waiver; Remedies Cumulative................... 29
- ii -
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Section 10.12 Language Construction............................ 29
Section 10.13 Communications................................... 29
Section 10.14 Captions......................................... 29
Section 10.15 Gender and Number................................ 29
Section 10.16 Reference to Agreement........................... 29
Section 10.17 Notice........................................... 29
Section 10.18 Choice of Forum.................................. 30
Section 10.19 Service of Process............................... 30
Section 10.20 Counterparts..................................... 31
Section 10.21 Defined Terms.................................... 31
EXHIBITS
Exhibit 1.1(u) Orthodontic Entity Professional Employment Agreements
Exhibit 7.3. Form of Security Agreement
- iii -
<PAGE>
SERVICE AGREEMENT
This Service Agreement (this "Agreement"), dated as of __________________,
1997, is by and between Apple Orthodontix Inc., a Delaware corporation ("AOI" or
"Apple"), __________________________, D.D.S., (referred to hereinafter as
"Orthodontist") and __________________________, a ___________________ (the
"Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, Orthodontic Entity and Orthodontist provide comprehensive
professional orthodontic care to the general public in the Corpus Christi area;
and
WHEREAS, Apple is in the business of owning certain assets of orthodontic
clinics and providing consulting, administrative, and other support services to
and furnishing orthodontic practices with the necessary facilities, equipment,
non-orthodontist personnel, supplies and support staff services; and
WHEREAS, the Orthodontic Entity and Orthodontist desire to obtain the
services of Apple in performing such functions so as to permit the Orthodontic
Entity to devote its efforts on a concentrated and continuous basis to the
rendering of orthodontic services to its patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
(a) "Acquisition" shall mean the acquisition described in the
Acquisition Agreement.
(b) "Acquisition Agreement" shall mean the Agreement and Plan of
Reorganization, dated as of February ____, 1997, among AOI,
__________________________, and __________________________.
(c) "Acquisition Closing Date" shall mean the date the Acquisition
is effective pursuant to the terms of the Acquisition Agreement.
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(d) "Affiliate" with respect to any person shall mean a person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
(e) "AOI Group" shall mean Apple, Affiliates of Apple or AOI and all
professional associations or corporations or other entities for which
Apple or its Affiliates provides management services.
(f) "AOI Plans" shall have the meaning set forth in SECTION 4.8(b).
(g) "Apple Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(i) Any corporate overhead charges of Apple and other items
incurred by Apple that are not incurred specifically for the purpose
of providing services to the Orthodontic Entity or Orthodontist or
are not directly attributable to the Orthodontic Entity or
Orthodontist as reasonably determined by Apple, including without
limitation, salaries and benefits of executive officers of Apple,
except as otherwise provided for in the definition of Orthodontic
Entity and Orthodontist Expenses;
(ii) Any legal and accounting expenses incurred by Apple in
connection with the Acquisition;
(iii) All taxes of Apple, including but not limited to state
and federal income taxes and franchise taxes, but excluding state
and federal employee taxes related to Orthodontist or employees who
provide services for the Orthodontic Entity or Orthodontist,
property taxes on assets used by the Orthodontic Entity or
Orthodontist and other taxes specifically included in Excluded
Orthodontic Entity and Orthodontist Expenses; and
(iv) Any other expenses specifically included in "Apple
Expenses" in this Agreement.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(i) "Confidential and Proprietary Information" shall have the
meaning set forth in SECTION 5.3.
(j) "Disabled" or "Disability" shall mean, with respect to
Orthodontist, (a) having a mental or physical incapacity sufficiently
serious that Apple may reasonably anticipate that Orthodontist will be
unable to resume the normal performance of Orthodontist's duties within
the two years succeeding the commencement of Orthodontist's incapacity, or
(b) Orthodontist's receipt of benefits for a period of six consecutive
months by reason of disability under a salary continuation, or other
disability plan, maintained for Orthodontist's benefit. In the event of
such mental or physical incapacity, each Orthodontist agrees upon Apple's
request to submit Orthodontist's
2
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medical and other related records to be examined by an independent
third-party doctor selected by Apple whose decision shall govern for
purposes of determining the existence of a disability.
(k) "ERISA" shall have the meaning set forth in SECTION 4.8(a).
(l) "Excluded Orthodontic Entity and Orthodontist Expenses" shall
mean, (i) any salaries or other distributions made to Orthodontist or any
shareholder of the Orthodontic Entity, whether for professional fee income
or otherwise, and any expenses related thereto, including payroll and
other taxes associated therewith, and any expenses or costs associated
with benefits provided to Orthodontist or any shareholder of the
Orthodontic Entity, including pension benefits and life and health
insurance, (ii) any federal, state or other income taxes applicable to the
Orthodontic Entity or Orthodontist, (iii) legal, accounting and other
costs incurred by the Orthodontic Entity or Orthodontist in connection
with the negotiation, preparation of or closing of the transactions
contemplated by the Acquisition Agreement, this Agreement or any other
document executed in connection herewith or therewith, (iv) any amounts
paid as Minimum Monthly Payments pursuant to Section 6.1, (v) any
expenses, costs or charges incurred by the Orthodontic Entity or
Orthodontist that would cause the Net Operating Amount (as defined in
Section 6.1 hereof) in any month to be less than 45% of gross revenue
received from patients for orthodontic services provided for such month on
a cash basis, and (vi) any other expenses specifically included in
"Excluded Orthodontic Entity and Orthodontist Expenses" in this Agreement.
(m) "Fair Market Value" shall mean as to any assets, the fair market
value of such assets as determined by Apple and the Orthodontic Entity. In
the event the parties are unable to agree upon the fair market value, then
Apple and the Orthodontic Entity shall each select an independent
appraiser who will then select a third independent appraiser who will
determine the fair market value of the asset in question.
(n) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
or in such other statements by such other entity or other practices and
procedures as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
(o) "Initial Working Capital Line" shall have the meaning set forth
in SECTION 6.3.
(p) "Loan Termination Date" shall have the meaning set forth in
SECTION 6.3.
(q) "Orthodontic Entity" shall include the Orthodontic Entity as
defined in the first paragraph of this Agreement and all satellite
locations and related businesses of such Orthodontic Entity.
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(r) "Orthodontic Entity and Orthodontist Expenses" shall mean all
operating and non-operating expenses of Apple or AOI with respect to the
Orthodontic Entity for services requested by the Orthodontic Entity or
Orthodontist and all operating and non-operating expenses of the
Orthodontic Entity and Orthodontist incurred by the Orthodontic Entity or
Orthodontist in the operation of the Orthodontic Entity or the practice of
orthodontics by Orthodontist, including, without limitation:
(i) Salaries, benefits and other direct costs of all employees
of Apple who perform services for the benefit of the Orthodontic
Entity or Orthodontist and all salaries and benefits of Orthodontic
Entity Professional Employees and Orthodontic Entity Employees,
including, without limitation, federal and state employee taxes and
costs related to workers' compensation; provided, however, only the
portion of salaries, benefits and other direct costs related to such
employee, without mark-up, that is allocable to work performed at or
for the benefit of the Orthodontic Entity or Orthodontist and
approved by the Orthodontic Entity or Orthodontist will be included
in Orthodontic Entity and Orthodontist Expenses;
(ii) Direct costs of all employees or consultants of Apple and
its Affiliates to provide services at or in connection with the
Orthodontic Entity or for the Orthodontist at or in connection with
the Orthodontic Entity for improved performance; provided, however,
(x) only the portion of salaries, benefits and other direct costs
related to such employee or consultant, without mark-up, that is
allocable to work performed at or for the benefit of the Orthodontic
Entity or Orthodontist and approved by the Orthodontic Entity or
Orthodontist will be included in Orthodontic Entity and Orthodontist
Expenses, and (y) the salaries, other employee benefits or
consulting fees paid by Apple and its Affiliates to the consultants
who will provide three days per annum of marketing consulting
services and one day per annum of health and safety consulting
services shall not be included in Orthodontic Entity and
Orthodontist Expenses but shall be Apple Expenses;
(iii) Personal property and intangible taxes assessed against
assets of Apple or any of its Affiliates which are leased or
utilized for the benefit of the Orthodontic Entity or Orthodontist
under this Agreement, commencing on the date of this Agreement;
provided, however, only the portion of the taxes related to such
assets, without mark-up, that is allocable to the use of such assets
at or for the benefit of the Orthodontic Entity or Orthodontist and
approved by the Orthodontic Entity or Orthodontist will be included
in Orthodontic Entity and Orthodontist Expenses;
(iv) All costs, fees, expenses and other disbursements
incurred in connection with the Premises (as defined in SECTION 3.3)
and the Personal Property (as defined in SECTION 3.3), including,
without limitation, all costs of repairs, maintenance and
improvements, utility expenses (i.e., telephone, electric, gas and
water), janitorial services, refuse disposal, real or personal
property lease cost payments and expenses, taxes and casualty,
liability and other insurance,
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(v) Any provider tax or license fee assessed against the
Orthodontic Entity or Orthodontist by the State of ____________ and
any sales and use taxes assessed against Apple and its Affiliates,
the Orthodontic Entity or Orthodontist related to Orthodontic Entity
operations, the practice of orthodontics by Orthodontist or assessed
against Apple related to services provided hereunder;
(vi) Expenses related to professional meetings, seminars and
dues and professional licensing fees of Orthodontist or any
Orthodontic Entity Professional Employee or related to the business
of the Orthodontic Entity;
(vii) All expenses specifically included in "Orthodontic
Entity and Orthodontist Expenses" in this Agreement; and
(viii) Depreciation and amortization of all assets purchased
subsequent to the Acquisition for use by the Orthodontic Entity and
Orthodontist.
Provided, however, that, notwithstanding anything contained herein, Apple
Expenses and Excluded Orthodontic Entity and Orthodontist Expenses shall
not be included in Orthodontic Entity and Orthodontist Expenses.
(s) "Orthodontic Entity Employees" shall mean (i) those individuals
who are employed by or otherwise under contract or associated with the
Orthodontic Entity or Orthodontist that generate a professional charge,
and (ii) those individuals required by law to be employed by the
Orthodontic Entity or Orthodontist.
(t) "Orthodontic Entity Professional Employees" shall mean those
individuals who are orthodontists, dental hygienist or licensed
professionals employed by the Orthodontic Entity or Orthodontist or
otherwise under contract or associated with the Orthodontic Entity or
Orthodontist to provide professional orthodontic services to patients of
the Orthodontic Entity or Orthodontist, provided, however, that
Orthodontist shall be excluded from the definition of Orthodontic Entity
Professional Employees.
(u) "Orthodontic Entity Professional Employment Agreements" shall
mean the employment agreements entered into of even date herewith between
the Orthodontic Entity or Orthodontist and each Orthodontic Entity
Professional Employee (not including Orthodontic Entity Employees) in
substantially the form attached to the Acquisition Agreement as EXHIBIT
1.1(U).
(v) "Orthodontic Entity Related Liabilities" shall have the meaning
set forth in SECTION 9.7(b).
(w) "Personal Property" shall have the meaning set forth in SECTION
3.3(b).
(x) "Practice Plans" shall have the meaning set forth in SECTION
4.8(a).
(y) "Premises" shall have the meaning set forth in SECTION 3.3(a).
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(z) "Purchase Assets" shall have the meaning set forth in SECTION
9.7(a).
(aa) "Purchase Closing" shall have the meaning set forth in SECTION
9.8.
(ab) "Security Agreement" shall have the meaning set forth in
SECTION 6.4.
(ac) "Tax Returns" shall include all federal, state, local,
franchise, property and other tax returns.
(ad) "Termination Date" shall have the meaning set forth in SECTION
9.6.
ARTICLE II
RELATIONSHIP OF THE PARTIES
The Orthodontic Entity, Orthodontist and Apple intend to act and perform
as independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, agency or employment relationship between the
parties. Apple, the Orthodontic Entity and Orthodontist agree that the
Orthodontic Entity and Orthodontist shall retain the authority to direct the
orthodontic, professional, and ethical aspects of their orthodontic practice.
Apple shall neither exercise control over nor interfere with the
orthodontist-patient relationships of the Orthodontic Entity and Orthodontist,
which shall be maintained strictly between the orthodontists of the Orthodontic
Entity and their patients. The parties hereby agree that neither the benefits to
the Orthodontic Entity and Orthodontist hereunder, nor the payment of services
fees to Apple, require, are payment for, or are in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Apple or any of its Affiliates to any of the Orthodontic
Entity's or Orthodontist's patients in any facility or laboratory controlled,
managed or operated by Apple.
ARTICLE III
SERVICES TO BE PROVIDED BY APPLE
SECTION 3.1 OVERALL FUNCTION. In accordance with the terms hereof, Apple
shall provide or arrange for the services set forth in this ARTICLE , and the
costs, fees, expenses and other disbursements incurred by Apple in connection
therewith shall be included in Orthodontic Entity and Orthodontist Expenses,
except to the extent such costs, fees or expenses are Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses. Apple is authorized to perform its
services hereunder as is necessary or appropriate for the efficient operation of
the Orthodontic Entity. The Orthodontic Entity and Orthodontist will not act in
a manner which would prevent Apple from performing its duties hereunder and will
provide such information and assistance to Apple as is reasonably required by
Apple to perform its services hereunder. Apple shall, and shall use its best
efforts to cause its employees, to comply with all federal, state and local
laws, rules and regulations in its provision of services hereunder.
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SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
(a) The Orthodontic Entity hereby appoints Apple to serve as its
exclusive manager and administrator of non-orthodontist services relating
to the operation of the Orthodontic Entity and the practice of
orthodontics by Orthodontist, subject to matters reserved for the
Orthodontic Entity or Orthodontist as herein provided, and Apple shall
have all necessary authority to perform such services in accordance with
the terms of this Agreement. The Orthodontic Entity agrees that the
purpose and intent of this Agreement is to relieve the Orthodontic Entity
and Orthodontist to the maximum extent possible of the administrative,
accounting, non-orthodontist personnel and business aspects of its
practice. Apple agrees that the Orthodontic Entity, Orthodontist,
Orthodontic Entity Employees and the Orthodontic Entity Professional
Employees, and only the Orthodontic Entity, Orthodontist, Orthodontic
Entity Employees and the Orthodontic Entity Professional Employees, will
perform the orthodontic functions of their respective practices; provided,
however, that to the extent that an Apple employee assists Orthodontist,
any Orthodontic Entity Professional Employee or the Orthodontic Entity in
performing orthodontic functions, such Apple employee shall be subject to
the professional direction and supervision of Orthodontist, Orthodontic
Entity Professional Employee or Orthodontic Entity and in the performance
of such orthodontic functions, shall not be subject to any direction or
control by, or liability to, Apple, except as may be specifically
authorized by Apple. Apple will have no authority, directly or indirectly,
to perform or supervise, and will not perform or supervise, any
orthodontic function. Apple may, however, advise the Orthodontic Entity
and Orthodontist as to the relationship between its performance of
orthodontic functions and the overall administrative and business
functions of the practice to the extent permitted by applicable law. Apple
shall cause to be paid all federal and state employment taxes and related
tax reports for its employees.
(b) Apple shall, on behalf of Orthodontist and the Orthodontic
Entity, provide all services related to the billing of patients, insurance
companies and other third-party payors and collect the professional fees
for orthodontic services rendered by Orthodontist and the Orthodontic
Entity, for services performed outside the Orthodontic Entity for its
patients, and for all other professional and Orthodontic Entity services
and products and for services rendered by Orthodontist in accordance with
all applicable legal requirements and the policies and procedures of
third-party payors. To the extent necessary to comply with applicable laws
or the terms of any third-party payor arrangements, Apple shall bill in
the name of and on behalf of the Orthodontic Entity and Orthodontist. The
Orthodontic Entity hereby appoints Apple for the term of this Agreement to
be its true and lawful attorney-in-fact, for the following purposes: (i)
to bill patients, insurance companies and other third-party payors in the
Orthodontic Entity's and Orthodontist's name and on their behalf pursuant
to the fee schedule prepared by the Orthodontic Entity and Orthodontist;
(ii) to collect accounts receivable resulting from such billing in the
Orthodontic Entity's and Orthodontist's name and on their behalf; (iii) to
receive payments from insurance companies, prepayments received from
health care plans and all other third party payors; (iv) to take
possession of and endorse in the name of the Orthodontic Entity (and/or in
the name of an individual orthodontist, such payment intended for purpose
of payment of a orthodontist's bill related to the Orthodontic Entity
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or Orthodontist) any notes, checks, money orders, insurance payments and
other instruments received in payment of accounts receivable; and (v) in
each case, after approval by the Orthodontist, to initiate the institution
of legal proceedings in the name of the Orthodontic Entity or Orthodontist
or Orthodontic Entity Professional Employee to collect any accounts and
monies owed to the Orthodontic Entity or Orthodontist or Orthodontic
Entity Professional Employee, to enforce the rights of the Orthodontic
Entity or Orthodontist or Orthodontic Entity Professional Employee as
creditors under any contract or in connection with the rendering of any
service, and to contest adjustments and denials by third-party payors. The
Orthodontic Entity and Orthodontist shall, and shall cause each
Orthodontic Entity Professional Employee to, execute a Power of Attorney
in form and substance acceptable to the parties hereto in connection with
the rights and powers granted to Apple pursuant to this SECTION 3.2(b).
All monies shall be accounted for by Apple as being distinctly
attributable to the Orthodontic Entity. The Orthodontic Entity may perform
the functions or exercise the rights set forth in this SECTION 3.2(b) only
with the consent of Apple. The Orthodontic Entity and Orthodontist will
assist Apple with the functions set forth herein at the request of Apple.
(c) Apple shall supply to the Orthodontic Entity the ordinary,
necessary or appropriate services for the efficient operation of the
Orthodontic Entity, including without limitation, necessary clerical,
accounting, payroll, legal, bookkeeping and computer services, information
management, information for the preparation of Tax Returns, printing,
postage and duplication services and orthodontic transcribing services.
Apple shall prepare monthly and annual unaudited financial statements for
the Orthodontic Entity containing a balance sheet and income statement,
which shall be delivered to the Orthodontic Entity within 45 days after
the end of each calendar month and 120 days after the end of each calendar
year. Any audits to be conducted with respect to such financial statements
shall be an Excluded Orthodontic Entity and Orthodontist Expense.
(d) Apple shall maintain all files and records of the Orthodontic
Entity and Orthodontist relating to the operation of the Orthodontic
Entity or the practice of orthodontics by Orthodontist, including, but not
limited to, accounting, billing, collection and customary financial
records and patient files. The management of all files and records shall
comply with all applicable federal, state and local statutes and
regulations, and all files and records shall be located so that they are
readily accessible for patient care, consistent with ordinary records
management practices. The Orthodontic Entity and Orthodontist shall
supervise the preparation of, and direct the contents of, patient
orthodontic records, all of which shall remain confidential. All original
patient records shall be and remain the property of the Orthodontic Entity
or Orthodontist, as applicable; provided that, to the extent permitted by
applicable law, Apple shall have the right to copy such patient records
and to retain and use such copies.
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SECTION 3.3 FACILITIES.
(a) Apple shall make available to the Orthodontic Entity and
Orthodontist the premises that are described in SCHEDULE 3.3 attached
hereto (which describes each location where the Orthodontist provided
orthodontic services to patients on January 31, 1997 and each location
proposed to be opened to provide such services on such date) and such
other real property acquired (with the consent of the Orthodontic Entity
and Orthodontist) and improvements made by Apple or AOI for the use of the
Orthodontic Entity and Orthodontist hereunder (collectively, the
"Premises"); provided, that in the event that Apple's rights to use any
such premises shall terminate, Apple shall use reasonably commercial
efforts to provide other suitable premises to be used by the Orthodontic
Entity and Orthodontist, which premises shall be approved by the
Orthodontic Entity and Orthodontist, such approval not to be unreasonably
withheld. Apple shall obtain for the Orthodontic Entity and Orthodontist
all utilities reasonably required in connection with the use of the
Premises and shall provide for the proper cleanliness of the Premises,
including normal janitorial services and refuse disposal.
(b) Apple shall provide the Orthodontic Entity and Orthodontist with
the use of the equipment, furniture, fixtures, furnishings and other
tangible personal property acquired by Apple in the Acquisition, together
with replacements thereof and such other equipment, furniture, fixtures,
furnishings and tangible personal property acquired (with the consent of
the Orthodontic Entity or Orthodontist) by Apple or AOI for the use of
Orthodontic Entity and Orthodontist pursuant to the terms hereof
(collectively, the "Personal Property").
(c) Apple shall provide, finance, or cause to be provided or
financed, orthodontic related equipment as required by the Orthodontic
Entity. Apple may consult the Orthodontic Entity on the relationship
between its orthodontic equipment decisions and the overall administrative
and financial operations of the practice. All orthodontic and
non-orthodontic equipment acquired for the use of the Orthodontic Entity
shall be owned by Apple but shall be utilized solely by the Orthodontic
Entity so long as the Orthodontic Entity is repaying its portion of the
cost thereof. Apple and Orthodontic Entity will share equally in the cost
to purchase any new or replacement orthodontic or non-orthodontic
equipment to be acquired after consummation of the Acquisition (except
with respect to the first $100,000 worth of such equipment, which shall be
purchased by Apple), provided that the Orthodontic Entity and Apple
mutually agree to acquire such equipment. Apple may advance or cause to be
financed the total purchase value of any equipment acquired. The
Orthodontic Entity may repay in full its share of the cost or finance such
amount due to Apple in equal payments over a term of up to 60 months at a
rate of prime plus 1%. The amount, if any, due to Apple will be paid
monthly by the Orthodontic Entity. Any amounts paid to Apple by the
Orthodontic Entity pursuant to this Section 3.3(c) are Excluded
Orthodontic Entity and Orthodontist Expenses.
(d) In the event Apple and the Orthodontic Entity jointly determine
to open a satellite orthodontic office, (i) Apple will bear 60% of the
capital costs, and the Orthodontic Entity will bear 40% of the capital
costs, of opening such satellite office, and (ii) Apple shall make
available loans accruing annual interest at the prime rate of
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NationsBank of Texas, N.A. plus 1% to finance the Orthodontic Entity's and
Orthodontist's portion of such costs. No principal or interest payments
for any such loan shall be due until the first day of the sixteenth month
following the date of the loan (the "First Payment Date"). The amount of
interest that accrues until the date fifteen months after the origination
date of the loan shall be added to the original principal amount of the
loan to determine the principal amount payable by the Orthodontic Entity.
Sixty equal principal payments plus accrued interest shall be payable
beginning on the First Payment Date and ending on the first day of the
fifty-ninth month thereafter.
SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made by
the Orthodontic Entity or Orthodontist to employ additional orthodontists or
acquire orthodontist groups or practices, Apple may assist the Orthodontic
Entity in the identification and selection of orthodontists or orthodontist
groups or practices that may be beneficial in the operation of the Orthodontic
Entity. In the event that a decision is made by the Orthodontic Entity or
Orthodontist to pursue the employment of selected orthodontists or the
acquisition of a particular orthodontist group or practice, Apple may provide
recruiting, consulting, negotiating and other services and may provide for
legal, accounting and other professional advisor services in connection with
such transaction.
SECTION 3.5 INVENTORY AND SUPPLIES. Apple shall order and purchase
inventory and supplies, and such other ordinary, necessary or appropriate
materials which are reasonably necessary in the operation of the Orthodontic
Entity and which are requested by Orthodontist to deliver quality orthodontic
services in a cost-effective manner. Such inventory, supplies and other
materials shall be included in Orthodontic Entity and Orthodontist Expense at
their purchase price less discounts or rebates, if any.
SECTION 3.6 ADVERTISING AND PUBLIC RELATIONS. In consultation with the
Orthodontic Entity and Orthodontist, Apple shall design and produce (where
requested) any appropriate local public relations or advertising program on
behalf of the Orthodontic Entity, with appropriate emphasis on public awareness
of the availability of services at the Orthodontic Entity. Any design and
production costs incurred by Apple related to local public relations or
advertising programs requested by the Orthodontic Entity or Orthodontist shall
be Apple Expenses. All other costs of local advertising programs on behalf of
the Orthodontic Entity will be included in Orthodontic Entity and Orthodontist
Expenses, including, but not limited to, out-of-pocket costs incurred by Apple.
All public relations and advertising programs shall be conducted in compliance
with applicable standards of orthodontic ethics, laws and regulations. Apple
shall make available interest-free loans (up to an amount equal to the lesser of
the Orthodontic Entity's costs of local advertising and 6% of the Transaction
Value (as defined in the Acquisition Agreement)) to finance the Orthodontic
Entity's costs of local advertising until the first anniversary of the date of
this Agreement. The principal amount of any such loans shall be repaid by the
Orthodontic Entity in twelve equal monthly installments beginning on the first
anniversary of the date of this Agreement.
SECTION 3.7 PERSONNEL. Apple shall provide non-orthodontist professional
support and administrative personnel, clerical, secretarial, bookkeeping and
collection personnel reasonably necessary for the conduct of the Orthodontic
Entity's operations. Apple will consult with the orthodontist to determine the
salaries and fringe benefits to be paid to all such personnel. Such
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personnel shall be under the direction, supervision and control of Apple, with
those personnel performing patient care services subject to the professional
supervision of Orthodontist while such personnel are performing such patient
care services. If Orthodontist is dissatisfied with the services of any person,
Orthodontist shall consult with Apple. Apple shall in good faith determine
whether the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be reassigned or
terminated. All of Apple's obligations regarding staff shall be governed by the
overriding principle and goal of providing high quality orthodontic care.
Employee assignments shall be made to assure consistent and continued rendering
of high quality orthodontic support services and to ensure prompt availability
and accessibility of individual orthodontic support personnel to orthodontists
in order to develop constant, familiar and routine working relationships between
individual orthodontists and individual members of the orthodontic support
personnel. Apple shall maintain established working relationships wherever
possible and Apple shall make every effort consistent with sound business
practices to honor the specific requests of Orthodontist with regard to the
assignment of its employees. Apple shall provide administrative services such as
scheduling, personnel policies and payroll administration for Orthodontic Entity
Employees. Apple and the Orthodontic Entity shall use their best efforts to
define who are their respective employees for all administrative purposes.
SECTION 3.8 QUALITY ASSURANCE. Apple shall assist the Orthodontic Entity
in fulfilling its obligations to its patients to maintain a high quality of
orthodontic and professional services and any expenses incurred by Apple related
to such in connection therewith shall be included in Orthodontic Entity and
Orthodontist Expenses.
SECTION 3.9 OTHER CONSULTING AND ADVISORY SERVICES. Apple will provide
such consulting and other advisory services as requested by the Orthodontic
Entity or Orthodontist in all areas of the Orthodontic Entity's or
Orthodontist's business functions, including, without limitation, financial
planning, acquisition and expansion strategies, development of long-term
business objectives and other related matters. Subject to the provisions of
SECTION 1.1(r)(ii) hereof, the costs and expenses of third-party consultants
engaged by Apple to provide such services shall be Orthodontic Entity and
Orthodontist Expenses.
ARTICLE IV
OBLIGATIONS OF THE ORTHODONTIC ENTITY AND ORTHODONTIST
SECTION 4.1 EMPLOYMENT OF ORTHODONTIST EMPLOYEES. The Orthodontist shall
have complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of any orthodontist employed by the
Orthodontic Entity, although at the request of the Orthodontic Entity or
Orthodontist, Apple shall consult with the Orthodontic Entity and Orthodontist
with respect to such matters. Although Apple may provide payroll and other
related services to the Orthodontic Entity and Orthodontist, the Orthodontic
Entity and Orthodontist shall be solely responsible for the payment of their
respective Orthodontic Entity Professional Employees' and Orthodontic Entity
Employees' salaries and wages, payroll taxes and all other taxes and charges now
or hereafter applicable to them. Neither the Orthodontic Entity, Orthodontist,
their respective Orthodontic Entity Professional Employees nor their
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respective Orthodontic Entity Employees shall have any claim under this
Agreement or otherwise against Apple or AOI for workers' compensation,
unemployment compensation, Social Security benefits or any other employee
benefits, all of which shall be the sole responsibility of the Orthodontic
Entity and Orthodontist. The Orthodontic Entity and Orthodontist shall only
employ and contract with licensed orthodontists and other persons meeting
applicable credentialling guidelines established by the Orthodontic Entity and
Orthodontist and approved by Apple, which approval will not be unreasonably
withheld. The Orthodontic Entity and Orthodontist shall cooperate in the
obtaining and retaining of professional liability insurance by ensuring that
their respective Orthodontic Entity Professional Employees and Orthodontic
Entity Employees and other employees who have malpractice exposure or liability
are insurable, and participating in an on-going risk management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Orthodontic Entity and Orthodontist
shall provide professional services to patients in compliance at all times with
ethical standards, laws, rules and regulations applying to the Orthodontic
Entity, Orthodontist, the Orthodontic Entity Professional Employees and the
Orthodontic Entity Employees. The Orthodontic Entity and Orthodontist shall
ensure that Orthodontist, Orthodontic Entity Professional Employees and
Orthodontic Entity Employees have all required licenses, credentials, approvals
or other certifications to perform his or her duties and services. In the event
that any disciplinary actions or orthodontic malpractice actions are initiated
against Orthodontist, an Orthodontic Entity Professional Employee or an
Orthodontic Entity Employee, the Orthodontic Entity shall immediately inform
Apple of such action and the underlying facts and circumstances. The Orthodontic
Entity and Orthodontist shall carry out a program to monitor the quality of
orthodontic care practiced at the Orthodontic Entity. The Orthodontic Entity
shall employ such Orthodontic Entity Professional Employees as is necessary to
provide efficient orthodontic care to patients of the Orthodontic Entity.
Orthodontist and the Orthodontic Entity shall make all reports and inquiries to
any state data bank required by applicable law.
SECTION 4.3 ORTHODONTIC PRACTICE. The Orthodontic Entity and Orthodontist
shall use and occupy the Premises exclusively for the practice of orthodontics
and for providing other related services and products. Unless otherwise approved
in writing by the Orthodontic Entity and Apple, it is expressly acknowledged by
the Orthodontic Entity and Orthodontist that the orthodontic practice or
practices conducted at the Orthodontic Entity shall be conducted solely by
orthodontists associated with the Orthodontic Entity, and that the Orthodontic
Entity and Orthodontist shall not permit any other orthodontist or dental
practitioner to use or occupy the Orthodontic Entity. The Orthodontic Entity and
Orthodontist shall be solely and exclusively in control of all aspects of the
practice of orthodontics and the delivery of orthodontic services by
Orthodontist or at the Orthodontic Entity's facilities. The rendition of all
orthodontic professional services, including, but not limited to, diagnosis,
treatment, therapy, the prescription of medicine and drugs, and the supervision
and preparation of orthodontic reports shall be the sole responsibility of the
Orthodontic Entity and Orthodontist. Apple shall have no authority whatsoever
with respect to the establishment of fees or charges for the rendition of such
services; provided, however, that in the event the Orthodontic Entity or the
Orthodontist renders orthodontic services to a patient in consideration for
anything other than cash, Apple will determine the value of such consideration
for purposes of determining the amount of revenues received by the Orthodontic
Entity or Orthodontist. From time to time, the Orthodontic Entity and
Orthodontist in their discretion will adopt and implement fee schedules for
non-prepaid
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patients which shall be reasonable in relation to fees generally being obtained
in the same or similar market areas. Notwithstanding any provision of this
Agreement to the contrary, nothing herein shall be construed as precluding Apple
or AOI from permitting the use of or from entering into agreements with other
orthodontists or entities owned by other orthodontists similar to this
Agreement, with respect to the Premises, Personal Property and tradenames,
trademarks and other intangible assets of Apple or AOI utilized by the
Orthodontic Entity or Orthodontist pursuant to this Agreement; provided any such
other agreement shall not eliminate or diminish Apple's obligations hereunder or
interfere with the Orthodontic Entity's or Orthodontist's business.
SECTION 4.4 ORTHODONTIC ENTITY'S AND ORTHODONTIST'S INTERNAL MATTERS. The
Orthodontic Entity and Orthodontist shall be responsible for matters involving
their respective corporate governance, employees and similar internal matters,
including, but not limited to, preparation and contents of such reports to
regulatory authorities governing the Orthodontic Entity and Orthodontist that
the Orthodontic Entity or Orthodontist are required by law to provide,
distribution of professional fee income among Orthodontist or the shareholders
of the Orthodontic Entity, disposition of the Orthodontic Entity's and
Orthodontist's property and stock and hiring and firing of their employees and
licensing. Except for the expenses attributable to the distribution of
professional fee income among Orthodontist or the shareholders of the
Orthodontic Entity which will be included in Excluded Orthodontic Entity and
Orthodontist Expenses, the costs incurred in connection with the foregoing
matters shall be Orthodontic Entity and Orthodontist Expenses. The legal,
accounting and other professional services fees incurred by Orthodontist or the
Orthodontic Entity in connection with the internal matters of the Orthodontic
Entity, the personal accounting of the Orthodontic Entity and Orthodontist and
similar internal and personal matters, including without limitation, the costs
associated with enforcing any contract with a Orthodontic Entity Professional
Employee (other than as set forth in SECTION 5.8), shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
SECTION 4.5 COMPLIANCE WITH LAWS. The Orthodontic Entity and Orthodontist
shall, and shall use their best efforts to cause Orthodontist and Orthodontic
Entity Professional Employees to, comply with all applicable federal, state and
local laws, rules, regulations and restrictions in the conduct of the
Orthodontic Entity's and Orthodontist's business. Without limiting the
generality of the foregoing, the Orthodontic Entity and Orthodontist shall use
their best efforts to forbid Orthodontist and each Orthodontic Entity
Professional Employee to:
(a) enter into any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement,
to provide services, lease space, lease equipment or engage in any other
venture or activity with any orthodontist, hospital, pharmacy, home health
agency or other person or entity which is in a position to make or
influence referrals to, or otherwise generate business for, the
Orthodontic Entity or Orthodontist, if such transaction is in violation of
any applicable law, rule or regulation;
(b) knowingly and willfully make or cause to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
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(c) knowingly and willfully make or cause to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment; and
(d) fail to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment.
SECTION 4.6 ANCILLARY SERVICES. The Orthodontic Entity and Orthodontist
agree not to acquire, establish or operate any satellite location, orthodontic
office, health maintenance organization, preferred provider organization,
exclusive provider organization or similar entity or organization established or
operated by the Orthodontic Entity or Orthodontist after the date hereof without
the prior written consent of Apple. Orthodontist and the Orthodontic Entity
shall not merge or consolidate with any other entity or individual or liquidate
or dissolve or wind-up Orthodontist's or the Orthodontic Entity's affairs or
enter into any partnerships, joint ventures or sale-leaseback transactions or
purchase or otherwise acquire (in one or a series of transactions) any part of
the property or assets of any other person or entity without the prior written
consent of Apple. Apple's consent shall be required for the Orthodontist to
provide orthodontic services at a location other than the Orthodontic Entity or
on behalf of an entity or person other than the Orthodontic Entity.
SECTION 4.7 PREMISES AND PERSONAL PROPERTY. The Orthodontic Entity and
Orthodontist shall use the Premises and Personal Property for their intended use
to minimize the risk of damage, excessive wear and tear, and malfunction or
other breakdown of the Premises and Personal Property or any part thereof. The
Orthodontic Entity and Orthodontist shall promptly inform Apple in writing of
any and all material replacements, repairs or maintenance to any of the Premises
or Personal Property and any failures of equipment that they become aware of.
The Orthodontic Entity and the Orthodontist shall comply with all covenants and
provisions set forth in any leases for the Premises entered into or assumed by
Apple and Apple agrees to provide copies of all such leases to the Orthodontic
Entity and Orthodontist.
SECTION 4.8 ORTHODONTIC ENTITY EMPLOYEE BENEFIT PLANS.
(a) Effective immediately before the Acquisition Closing Date, the
Orthodontic Entity and Orthodontist shall freeze or terminate all
"employee benefit plans" (as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that are (i) sponsored or maintained by the Orthodontic Entity or
Orthodontist and (ii) are set forth on SCHEDULE 4.8(A) (the "Practice
Plans"). In connection with such actions, all account balances and accrued
benefits under all tax-qualified Practice Plans (within the meaning of
Section 401(a) of the Code) shall be made fully vested and nonforfeitable.
(b) Effective on the Acquisition Closing Date, Orthodontist shall
become a participating employer in AOI's employee benefit plans set forth
on SCHEDULE 4.8(B) (the "AOI Plans") with respect to Orthodontist's
employees. Orthodontist acknowledges that AOI will sponsor a defined
contribution plan and that Orthodontist may be precluded by Section
401(k)(2)(B)(i) from paying distributions in connection with the
termination of
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any Practice Plan that contains a "cash or deferred arrangement" within
the meaning of Section 401(k) of the Code. Accordingly, AOI shall take all
actions as it may determine to be reasonable to facilitate the merger of
the assets and liabilities of any tax-qualified Practice Plan into a
tax-qualified AOI Plan if such merger of tax-qualified plans is requested
by Orthodontist.
(c) With respect to any Practice Plan or AOI Plan, neither
Orthodontist nor AOI shall take any action or make any contribution to
such plan that would cause such plan to become disqualified for federal
tax purposes. Orthodontist shall not adopt, maintain, or continue any
employee benefit plan after the Acquisition Closing Date without the prior
written approval of AOI.
(d) Expenses incurred in connection with Practice Plans, including
without limitation the compensation of counsel, accountants, corporate
trustees, and other agents shall be Excluded Orthodontic Entity and
Orthodontist Expenses.
(e) The contribution and administration expenses for the
Orthodontist, Orthodontic Entity Professional Employees (which are not
expenses payable by the AOI Plans or by the participants in the AOI Plans)
shall be included in Orthodontist's operating budget. Orthodontist and AOI
shall not make employee benefit plan contributions or payments for their
respective employees in excess of such budgeted amounts unless required by
law or the terms of the AOI Plans. AOI shall make contributions or
payments with respect to the AOI Plans on behalf of eligible Orthodontic
Entity Professional Employees and Orthodontic Entity Employees and those
contributions or payments shall be treated as Orthodontic Entity and
Orthodontist Expenses, Apple Expenses or Excluded Orthodontic Entity and
Orthodontist Expenses as elsewhere provided in this Agreement.
(f) AOI shall have the sole and exclusive authority to adopt, amend,
or terminate any employee benefit plan for the benefit of its employees
and employees of other entities aggregated with AOI pursuant to Section
414(b), (c), (m) (o) of the Code.
SECTION 4.9 PEER REVIEW. Orthodontist and the Orthodontic Entity agree to
cooperate with Apple in establishing a system of peer review within and among
the orthodontic practices associated with Apple or its Affiliates. In connection
therewith, Orthodontist and the Orthodontic Entity agree to assist in the
formulation of orthodontic provider guidelines for each treatment or modality.
SECTION 4.10 ADDITIONAL ORTHODONTISTS. The Orthodontic Entity and
Orthodontist shall require, as a condition to an additional orthodontist
becoming a shareholder of the Orthodontic Entity, that such shareholder execute
an agreement in form and substance similar to this Agreement or become a party
to this Agreement by amendment hereto.
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ARTICLE V
RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by Apple hereunder
shall be feasible only if the Orthodontic Entity and Orthodontist operate an
active orthodontic practice to which the orthodontists associated with the
Orthodontic Entity devote their full business time and attention. Accordingly,
the parties hereto agree as follows:
SECTION 5.1 RESTRICTIVE COVENANTS BY THE ORTHODONTIC ENTITY.
(a) During the term of this Agreement and for a period of two years
after termination of this Agreement for any reason other than pursuant to
SECTION 9.3 hereof, the Orthodontic Entity shall not without the prior
written consent of Apple (i) establish, operate or provide orthodontic
services at any orthodontic office, clinic or other health care facility
providing services similar to those provided by the Orthodontic Entity, or
(ii) engage or participate in any business which engages in competition
with the business conducted by AOI Group; in either case anywhere within
____ miles of any Premises.
(b) The Orthodontic Entity agrees that in the event of a breach of
SECTION 5.1(a) above, the Orthodontic Entity shall pay to Apple an amount
equal to the greater of (i) $200,000, and (ii) an amount equal to the
gross cash receipts of the Orthodontic Entity for the preceding twelve
(12) months.
(c) The Orthodontic Entity agrees that the noncompetition
restrictions set forth in this Agreement are reasonable as to time and
geographic area.
SECTION 5.2 RESTRICTIVE COVENANTS OF ORTHODONTIST.
(a) Orthodontist agrees and acknowledges that, until the later of
(i) the expiration of the fifth anniversary of the date of this Agreement,
or (ii) five years from the date Orthodontist becomes a shareholder of the
Orthodontic Entity, Orthodontist will devote Orthodontist's full business
time and attention to rendering professional services on behalf of the
Orthodontic Entity and in furtherance of the Orthodontic Entity's best
interest.
(b) Orthodontist hereby agrees that during the period set forth in
SECTION 5.2(a) above and for a period of two (2) years after the
termination of this Agreement for any reason other than termination of
this Agreement as to the Orthodontist pursuant to SECTION 9.3 hereof,
Orthodontist will not (i) directly or indirectly establish, operate or
provide orthodontist services at any orthodontic office, clinic or other
facility providing services similar to those provided by the Orthodontic
Entity or engage or participate in or finance any business which engages
in direct competition with the business being conducted by AOI Group, in
either case, anywhere within 50 miles of any Premises, (ii) directly or
indirectly compete with the Orthodontic Entity or member of the AOI Group
in any way, (iii) act as an officer, director, employee, consultant,
shareholder, lender, guarantor or agent of, or otherwise assist any entity
which is engaged in any
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business of the same nature as, or in direct competition with, the
business in which the AOI Group is now engaged or other business in which
the AOI Group becomes engaged, or (iv) induce or attempt to influence any
employee of the AOI Group to terminate his or her employment, or to hire
any such employee, whether or not so induced or influenced, except that
any such employee may be hired with the prior written consent of AOI.
(c) Orthodontist agrees that in the event of a breach of SECTION
5.2(a) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii) an amount equal to the gross cash
receipts of the Orthodontic Entity for the preceding twelve (12) months.
(d) Orthodontist agrees that in the event of a breach of SECTION
5.2(b) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii) an amount equal to the gross cash
receipts of the Orthodontic Entity for the preceding twelve (12) months.
(e) Orthodontist acknowledges and recognizes that enforcement of
SECTIONS 5.2(a) and 5.2(b) above by Apple will not interfere with
Orthodontist's ability to pursue a proper livelihood. Orthodontist agrees
that the noncompetition restrictions set forth in this Agreement are
reasonable as to time and geographic area.
Notwithstanding the foregoing, however, this SECTION 5.2 shall not
prohibit Orthodontist or any of his or her Affiliates (including the
Orthodontic Entity) from purchasing or holding an aggregate publicly
traded equity interest of up to 2%, so long as Orthodontist and his or her
affiliates (including the Orthodontic Entity and the other orthodontist
owning an equity interest in the Orthodontic Entity) do not purchase or
hold an aggregate equity interest of more than 5% in any business in
direct competition with the AOI Group.
SECTION 5.3 ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. The Orthodontic
Entity and Orthodontist recognize the proprietary interest of AOI Group in any
Confidential and Proprietary Information (as hereinafter defined) of AOI Group.
The Orthodontic Entity and Orthodontist acknowledge and agree that any and all
Confidential and Proprietary Information communicated to, learned of, developed
or otherwise acquired by the Orthodontic Entity and Orthodontist during the term
of this Agreement shall be the property of AOI Group. The Orthodontic Entity and
Orthodontist further acknowledge and understand that their disclosure of any
Confidential and Proprietary Information will result in irreparable injury and
damage to AOI Group. As used herein, "Confidential and Proprietary Information"
means all trade secrets and other confidential and/or proprietary information of
AOI Group, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, financial projections,
cost summaries, pricing formula, contracts analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than the Orthodontic Entity's and Orthodontist's original
patient records) prepared or performed for, by or on behalf of AOI Group by its
employees, officers, directors, agents, representatives, or consultants.
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SECTION 5.4 COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY
INFORMATION. The Orthodontic Entity and Orthodontist acknowledge and agree that
AOI Group is entitled to prevent the disclosure of Confidential and Proprietary
Information. The Orthodontic Entity and Orthodontist agree at all times during
the term of this Agreement and thereafter to hold in strictest confidence and
not to disclose to any person, firm or corporation, other than to Orthodontic
Entity Professional Employees and persons engaged by Apple to further the
business of the Orthodontic Entity, and not to use except in the pursuit of the
business of AOI Group, Confidential and Proprietary Information, without the
prior written consent of Apple; unless (i) such information becomes known or
available to the public generally through no wrongful act of the Orthodontic
Entity or Orthodontist or its employees, (ii) disclosure is required by law or
the rule, regulation or order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential and Proprietary Information
pursuant to this clause (ii), the Orthodontic Entity and Orthodontist shall, if
possible, give prior written notice thereof to Apple and provide Apple with the
opportunity to contest such disclosure, or (iii) the Orthodontic Entity and
Orthodontist reasonably believe that such disclosure is required in connection
with a lawsuit to which the Orthodontic Entity or Orthodontist is a party.
SECTION 5.5 RETURN OF MATERIALS TO APPLE. In the event of any termination
of this Agreement for any reason whatsoever, or at any time upon the request of
Apple, the Orthodontic Entity or the Orthodontist for whom the termination is
applicable will promptly deliver to Apple all documents, data and other
information in the Orthodontic Entity's or Orthodontist's possession that
contains any Confidential and Proprietary Information. The Orthodontic Entity
and Orthodontist shall not take or retain any documents or other information, or
any reproduction or excerpt thereof, containing any Confidential and Proprietary
Information, unless otherwise authorized in writing by Apple.
SECTION 5.6 [INTENTIONALLY DELETED].
SECTION 5.7 RESTRICTIVE COVENANTS OF ORTHODONTIC ENTITY PROFESSIONAL
EMPLOYEES. Each Orthodontic Entity Professional Employment Agreement contains
certain restrictive covenants thereof pertaining to covenants not to compete
with and not to divulge the confidential and proprietary information of Apple,
Orthodontist and the Orthodontic Entity. During the term of this Agreement, the
Orthodontic Entity and Orthodontist shall obtain written agreements which
contain restrictive covenants in substantially the same form from each
Orthodontic Entity Professional Employee (other than Orthodontic Entity
Employees) associated with the Orthodontic Entity or Orthodontist after the date
hereof. Except with respect to sections of the Orthodontic Entity Professional
Employment Agreements pertaining to matters of compensation, during the term of
this Agreement, the Orthodontic Entity and Orthodontist shall not amend, alter
or otherwise change any term or provision of any Orthodontic Entity Professional
Employment Agreement without the prior written consent of AOI, which consent
shall not be unreasonably withheld. Following termination of this Agreement, the
Orthodontic Entity and Orthodontist shall not amend, alter or otherwise change
any term or provision of the restrictive covenants contained in such Orthodontic
Entity Professional Employment Agreement unless such provisions are no longer in
force and effect pursuant to the terms of the applicable agreement at the time
of termination of this Agreement.
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SECTION 5.8 RESTRICTIVE COVENANTS OF APPLE. Apple hereby agrees that
during the term of this Agreement, it will not engage or participate in or
finance any orthodontist's practice (whether through the acquisition of another
existing orthodontic practice, affiliation with another orthodontist or the
opening of a satellite office) anywhere within ____ miles of any location from
which the Orthodontic Entity provides orthodontic services to patients on the
date hereof (each an "Orthodontic Entity Location") without the prior written
consent of the Orthodontist.
SECTION 5.9 REMEDIES. Apple, Orthodontist and the Orthodontic Entity
acknowledge and agree that a remedy at law for any breach or attempted breach of
the provisions of this ARTICLE V shall be inadequate, and therefore, either
party shall be entitled to specific performance and injunctive or other
equitable relief in the event of any such breach or attempted breach, in
addition to any other rights or remedies available to either party at law or in
equity. Each party hereto waives any requirement for the securing or posting of
any bond in connection with the obtaining of any such injunctive or other
equitable relief. If any provision of the restrictive covenants contained in the
Orthodontic Entity Professional Employment Agreements or this ARTICLE V relating
to the restrictive period, scope of activity restricted and/or the territory
described therein shall be declared by a court of competent jurisdiction to
exceed the maximum time period, scope of activity restricted or geographical
area such court deems reasonable and enforceable under applicable law, the time
period, scope of activity restricted and/or area of restriction held reasonable
and enforceable by the court shall thereafter be the restrictive period, scope
of activity restricted and/or the territory applicable to such provision of the
restrictive covenants or this ARTICLE V. The invalidity or non-enforceability
of any provision of the restrictive covenants or this ARTICLE V in any respect
shall not affect the validity or enforceability of the remainder of the
restrictive covenants or this ARTICLE V or of any other provisions of this
Agreement.
ARTICLE VI
FINANCIAL AND SECURITY ARRANGEMENTS
The Orthodontic Entity and Apple agree that the compensation set forth in
this ARTICLE VI is being paid to Apple in consideration of the services provided
and the substantial commitment and effort made by Apple hereunder and that such
fees have been negotiated at arm's length, and are fair and reasonable and
consistent with fair market value.
SECTION 6.1 SERVICE FEES. Apple shall charge the Orthodontic Entity for
services on a monthly basis an amount equal to the sum of the following:
(a) Total monthly revenue of the Orthodontic Entity and Orthodontist,
which is equal to the sum of (i) 24% of the Initial Monthly Contract Balance and
(ii) the Monthly Contract Residual,
(b) Less the amounts retained by the Orthodontic Entity, which are equal
to (i) 70% of that portion of the Net Operating Amount that is equal to 45% of
the Orthodontic Entity's and Orthodontist's gross revenue received during such
month from patients for orthodontic services
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provided ("Cash Receipts") and (ii) 75% of that portion of the Net Operating
Amount, if any, which exceeds 45% of the Orthodontic Entity's and Orthodontist's
Cash Receipts during such month; and
(c) Plus any Excluded Orthodontic Entity and Orthodontist Expenses as
defined under the terms of Section 1.1 (l).
In no event shall the amount determined pursuant to Section 6.1 (b), less the
amount determined pursuant to Section 6.1 (c), be less than $_____ ("Minimum
Monthly Payment").
For purposes of this Section , (i) "Net Operating Amount" for any month
shall mean the Orthodontic Entity's and Orthodontist's gross revenues less
Orthodontic Entity and Orthodontist Expenses on a cash basis, (ii) "Contract"
shall mean any contract, understanding, arrangement or agreement between a
patient of the Orthodontic Entity or Orthodontist for the provision of
orthodontic services at a predetermined fee-for-service amount (whether or not
payable in cash), (iii) "Initial Monthly Contract Balance" for a given month
shall mean the total value of any Contracts entered into on or prior to the last
business day of each month (unless included in the Initial Monthly Contract
Balance of a previous month), and (iv) "Monthly Contract Residual" shall mean
the quotient of (a) the lesser of 76% of the total amount payable by the patient
pursuant to a Contract or the remaining balance due from the patient under any
Contract, divided by (b) the remaining term of such Contract. That portion of
Cash Receipts the Orthodontic Entity is not entitled to retain pursuant to
Section 6.1(b) plus the amount determined pursuant to Section 6.1(c) shall be
paid to Apple at the end of each month, but no later than the 15th day after the
end of each month (or the first preceding day that is a business day if the 15th
day is not a business day).
SECTION 6.2 EXCLUDED EXPENSES. Any amounts reimbursed to Apple under
Section 6.1(c) shall be available to reduce amounts due to Apple in future
months to the extent the Net Operating Amount for such future month exceeds 45%
of the Orthodontic Entity's and Orthodontist's Cash Receipts so long as the
applicable month to which this Section 6.2 applies is within the same calendar
year as the month in which the obligation to reimburse Apple for amounts under
Section 6.1(c) arose.
SECTION 6.3 WORKING CAPITAL LOANS. As part of the services provided by
Apple hereunder, Apple may make available loans to assist the Orthodontic Entity
in maintaining reasonable cash flow for the payment of Excluded Orthodontic
Entity and Orthodontist Expenses.
(a) Initial Working Capital. Apple shall make available to the Orthodontic
Entity an interest free line of credit ("Initial Working Capital Line") for the
initial working capital needs of the Orthodontic Entity, up to a maximum amount
equal to the reduction in Net Operating Amount attributable to changes in
patient payment schedules. The Orthodontic Entity shall be entitled to draw
funds from the Initial Working Capital Line up until six (6) months after the
Acquisition Closing Date ("Loan Termination Date"). The amount, if any, of the
Initial Working Capital Line outstanding on the Loan Termination Date shall be
repaid, in equal monthly installments (without interest) over a two-year period
commencing on the Loan Termination Date.
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(b) Subsequent Working Capital. Apple may make available to the
Orthodontic Entity loans for subsequent working capital requirements in amounts
not to exceed Excluded Orthodontic Entity and Orthodontic Expenses. Such loans
shall accrue interest beginning on the day of the advance at an interest rate
equal to the prime rate then in effect, plus 1%. The loans, if any, shall be
repaid to Apple out of the Net Operating Amount generated in subsequent months
and become immediately due and payable if the Orthodontist terminates his
employment with the Orthodontic Entity, for any reason.
Any principle or interest paid to Apple by the Orthodontic Entity pursuant
to Sections 6.3(a) or 6.3(b) are Excluded Orthodontic Entity and Orthodontist
Expenses.
SECTION 6.4 SECURITY AGREEMENT. To secure their obligations hereunder, the
Orthodontic Entity and Orthodontist shall execute a Security Agreement in
substantially the form attached hereto as EXHIBIT 6.4 (the "Security
Agreement"), which Security Agreement grants a security interest in all of the
Orthodontic Entity's and Orthodontist's accounts receivable (as more fully
described in the Security Agreement) to Apple. In addition, the Orthodontic
Entity and Orthodontist shall cooperate with Apple and execute all necessary
documents in connection with the pledge of such accounts receivable to Apple or
at Apple's option, its lenders. All collections in respect of such accounts
receivable shall be deposited in a bank account at a bank designated by Apple.
To the extent that the Orthodontic Entity or Orthodontist comes into possession
of any payments in respect of such accounts receivable, the Orthodontic Entity
or Orthodontist shall promptly remit such payments to Apple.
ARTICLE VII
RECORDS
SECTION 7.1 RECORDS OWNED BY APPLE. All records (other than patients'
orthodontic records) relating in any way to the operation of the Orthodontic
Entity shall at all times be the property of Apple. During the term of, and upon
termination, of this Agreement, to the extent permitted by law, and expressly
acknowledging the confidential nature of same, Apple shall be entitled to have
access to and copy and retain such copies of patient orthodontic records.
SECTION 7.2 ACCESS TO RECORDS. During the term of this Agreement, and for
a reasonable time thereafter, the Orthodontic Entity and Orthodontists or their
respective agents shall have reasonable access during normal business hours to
the Orthodontic Entity's and Apple's financial records, including, but not
limited to, records of collections, expenses and disbursement as kept by Apple
in performing Apple's obligations under this Agreement, and the Orthodontic
Entity and Orthodontist may copy any or all such records.
ARTICLE VIII
INSURANCE AND INDEMNITY
SECTION 8.1 INSURANCE TO BE MAINTAINED BY THE ORTHODONTIC ENTITY AND
ORTHODONTIST. During the term of this Agreement, the Orthodontic Entity and
Orthodontist shall
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maintain comprehensive professional liability insurance with such carrier
as determined jointly by Apple and the Orthodontic Entity, with limits of not
less than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per orthodontist and a separate limit for the Orthodontic Entity
(each such amount being subject to adjustment every three years based on cost of
living increases during any such period) with such deductible as is mutually
agreeable by Apple and the Orthodontic Entity. All malpractice premiums and
deductibles related thereto that are paid by Apple shall be included in
Orthodontic Entity and Orthodontist Expenses. All costs, expenses and
liabilities incurred by Orthodontic Entity, Orthodontist or Apple in excess of
the limits of such policies shall be included in Excluded Orthodontic Entity and
Orthodontist Expenses. Apple shall have the option of providing such
professional liability insurance through an alternative program, provided such
program meets the requirements of the Insurance Commissioner of the State of
Texas. If Orthodontist's existing professional liability insurance program is
cancelled and replaced by a professional liability insurance program initiated
by Apple, Apple shall pay over to Orthodontist any unearned professional
liability insurance premiums paid by Orthodontist to the extent Orthodontist's
carrier pays such amounts to Apple.
SECTION 8.2 INSURANCE TO BE MAINTAINED BY APPLE. During the term of this
Agreement, Apple will use reasonable efforts to provide and maintain, as a
Orthodontic Entity and Orthodontist Expense, comprehensive professional
liability insurance for all professional employees of Apple, and comprehensive
general liability and property insurance covering the Orthodontic Entity
premises and operations with such limits as determined reasonable and
appropriate by Apple and after obtaining the Orthodontic Entity's approval to
purchase any such insurance.
SECTION 8.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Orthodontic
Entity and Orthodontist shall obtain or require each of Orthodontist and their
Orthodontic Entity Professional Employees to obtain continuing liability
insurance coverage under either a "tail policy" or a "prior acts policy," with
the same limits and deductibles as the insurance coverage provided pursuant to
SECTION 8.1 for each orthodontist associated with the Orthodontic Entity upon
the termination of such orthodontist's relationship with the Orthodontic Entity
for any reason. In the event that neither the Orthodontic Entity, Orthodontist
nor the Orthodontic Entity Professional Employees obtains such continuing
liability insurance coverage, Apple may do so. The costs of continuing liability
insurance coverage shall be included in Orthodontic Entity and Orthodontist
Expenses unless such cost is borne by Orthodontist or the Orthodontic Entity
Professional Employee.
SECTION 8.4 ADDITIONAL INSUREDS. The Orthodontic Entity, Orthodontist and
Apple agree to use their reasonable efforts to have each other named as an
additional insured on the other's respective professional liability insurance
programs. The additional cost, if any, associated therewith shall be paid by
Apple and shall be a Orthodontic Entity and Orthodontist Expense.
SECTION 8.5 INDEMNIFICATION. To the extent permitted under insurance
policies in place on the date hereof or policies to be entered into with
insurers acceptable to Apple, the Orthodontic Entity and Orthodontist, jointly
and severally, shall indemnify, defend and hold Apple, its officers, directors,
stockholders, employees, agents and consultants (other than such persons who are
also officers, directors, shareholders, employees, agents or
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consultants of the Orthodontic Entity) harmless, from and against any and all
liabilities, losses, damages, claims, causes of action and expenses (including
reasonable attorneys' fees), whether or not covered by insurance (including
self-insured insurance and reserves), whenever arising or incurred, that are
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 Orthodontist, the Orthodontic
Entity and/or its shareholders, agents, employees and/or subcontractors (other
than Apple) during the term of this Agreement. Apple shall indemnify, defend and
hold Orthodontist and the Orthodontic Entity, its officers, shareholders,
directors, employees, agents and consultants, harmless from and against any and
all liabilities, losses, damages, claims, causes of action and expenses
(including reasonable attorneys' fees), whether or not covered by insurance
(including self-insured insurance and reserves) that are 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 Apple and/or its
stockholders, agents, employees and/or subcontractors (other than the
Orthodontic Entity) during the term of this Agreement.
ARTICLE IX
TERM AND TERMINATION
SECTION 9.1 TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the 20th anniversary hereof unless earlier terminated
pursuant to the terms of either SECTION 9.3 or SECTION 9.4or automatically
extended pursuant to the terms of SECTION 9.2.
SECTION 9.2 EXTENDED TERM. Unless earlier terminated as provided for in
either SECTION 9.3 or SECTION 9.4, the term of this Agreement shall be
automatically extended for additional terms of five (5) years each, unless
either party delivers to the other party, not less than twelve (12) months nor
earlier than fifteen (15) months prior to the expiration of the preceding term,
written notice of such party's intention not to extend the term of this
Agreement.
SECTION 9.3 TERMINATION BY THE ORTHODONTIC ENTITY AND ORTHODONTIST. The
Orthodontic Entity or Orthodontist may terminate this Agreement with respect to
such party by giving written notice thereof to Apple (after the giving of any
required notices and the expiration of any applicable waiting periods set forth
below) upon the occurrence of any the following events:
(a) Apple or AOI shall admit in writing its inability to generally
pay its debts when due, apply for or consent to the appointment of a
trustee, receiver or liquidator of all or substantially all of its assets,
file a petition in voluntary bankruptcy or make an assignment for the
benefit of creditors, or upon other action taken or suffered by Apple,
voluntarily or involuntarily, under any federal or state law for the
benefit of debtors, except for the filing of a petition in involuntary
bankruptcy against Apple or AOI, as the case may be, which is dismissed
within sixty (60) days thereafter.
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(b) Apple or AOI shall default in the performance of any material
duty or material obligation imposed upon it by this Agreement and such
default shall continue for a period of forty-five (45) days after written
notice thereof has been given to Apple by the Orthodontic Entity or
Orthodontist, provided that the Orthodontic Entity may terminate this
Agreement, if and only if, such termination shall have been approved by
the affirmative vote of the holders of two-thirds of the interests of the
shareholders of the Orthodontic Entity.
SECTION 9.4 TERMINATION BY APPLE. Apple may terminate this Agreement in
its entirety or with respect to the Orthodontic Entity or Orthodontist by giving
written notice thereof to the Orthodontic Entity and Orthodontist (after the
giving of any required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any the following events:
(a) The Orthodontic Entity or Orthodontist shall admit in writing
its inability to generally pay its debts when due, apply for or consent to
the appointment of a trustee, receiver or liquidator of all or
substantially all of its assets, file a petition in voluntary bankruptcy
or make an assignment for the benefit of creditors, or upon other action
taken or suffered by the Orthodontic Entity, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors, except for the
filing of a petition in involuntary bankruptcy against the Orthodontic
Entity or Orthodontist which is dismissed within sixty (60) days
thereafter.
(b) The Orthodontic Entity or Orthodontist shall default in the
performance of any material duty or material obligation imposed upon it by
this Agreement and such default shall continue for a period of ninety (90)
days after written notice thereof has been given to the Orthodontic Entity
or Orthodontist by Apple.
(c) The Orthodontic Entity, Orthodontist or any Orthodontic Entity
Professional Employee (i) engages in any conduct for which the
Orthodontist's or such Orthodontic Entity Professional Employee's license
to practice orthodontics is revoked or suspended, or (ii) is the subject
of any restrictions or limitations by any governmental authority to such
an extent that he, she or it cannot engage in the practice of
orthodontics.
(d) With respect to Orthodontist, Orthodontist shall become Disabled
and Apple shall give notice of termination to Orthodontist's estate within
ninety (90) days of the date Apple becomes aware of such Disability.
(e) With respect to Orthodontist, Orthodontist shall die.
SECTION 9.5 TERMINATION BY ORTHODONTIST.
(a) This Agreement shall terminate with respect to Orthodontist in
the event of a voluntary termination by the Orthodontist of his
Orthodontic Entity Professional Employment Agreement after the five (5)
year period set forth in SECTION 5.2(a); provided, however, that
Orthodontist shall give Apple at least one (1) year notice of such
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voluntary termination. In the event termination with respect to the
Orthodontist in accordance with this SECTION 9.5, the restrictive
covenants contained in SECTION 5.2(b) shall apply with respect to
Orthodontist for two (2) years following the effective date of such
termination and not for the term of this Agreement.
(b) This Agreement (including the restrictive covenants in Section
5.2(b)) shall terminate with respect to the Orthodontist in the event (i)
of the imposition (by a final, unappealable order) of any restrictions or
limitations by any governmental authority having jurisdiction over the
Orthodontist to such an extent that he cannot engage in the professional
practice of orthodontics for the five-year period set forth in Section
5.2(a) and (ii) this Agreement cannot be reformed pursuant to Section 10.6
or Section 10.9 hereof to the extent necessary to render such order
inapplicable.
SECTION 9.6 EFFECTIVE DATE OF TERMINATION. Any termination of this
Agreement shall be effective (the "Termination Date") as follows:
(a) Immediately upon receipt of a termination notice pursuant to
either SECTION 9.3 or SECTION 9.4;
(b) Upon the expiration of this Agreement pursuant to SECTIONS 9.1
and 9.2; or
(c) If terminated for any reason other than as set forth in the
immediately preceding clauses (a) and (b), as of the Purchase Closing.
SECTION 9.7 PURCHASE OF ASSETS. Upon expiration or termination of this
Agreement for any reason other than pursuant to SECTION 9.4(d), SECTION 9.4(e)
or SECTION 9.5 hereof, the Orthodontic Entity shall have the option to, and
Apple shall have the option to require the Orthodontic Entity to,:
(a) Purchase from Apple at Fair Market Value all tangible assets of
Apple or its Affiliates that relate primarily to the Orthodontic Entity
other than Apple's accounting and financial records and other records and
files relating to the operation of the Orthodontic Entity (the "Purchase
Assets"), including, but not limited to, (i) all tangible assets set forth
on Apple's balance sheet as of the Termination Date relating primarily to
the Orthodontic Entity, (ii) all equipment, furniture, fixtures,
furnishings, inventory, supplies, improvements, additions and leasehold
improvements utilized by the Orthodontic Entity, and (iii) any real estate
owned by Apple or an Affiliate that is exclusively associated with the
Orthodontic Entity; and
(b) Assume all liabilities, debt, payables and other obligations
(including lease and other contractual obligations) of Apple and any of
its Affiliates which relate exclusively to the Orthodontic Entity or to
the performance of Apple's obligations under this Agreement (the
"Orthodontic Entity Related Liabilities").
The Orthodontic Entity shall be able to exercise its option under this Section
(unless this Agreement is terminated pursuant to SECTION 9.4) and Apple shall be
able to exercise its option
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under this Section (unless this Agreement is terminated pursuant to SECTION 9.3)
by giving written notice thereof in the Termination Notice, if applicable, or
prior to ninety (90) days before the Termination Date if this Agreement is
terminated pursuant to SECTIONS 9.1 and 9.2. In connection with the purchase and
sale of the Purchase Assets pursuant to this SECTION 9.7, Apple shall cause the
Purchase Assets to be conveyed free of any lien, claim or encumbrance, other
than those arising out of the Orthodontic Entity Related Liabilities.
SECTION 9.8 TERMS OF PURCHASE. The closing of the transactions
contemplated by SECTION 9.7 (the "Purchase Closing") shall occur (a) on the
Termination Date if this Agreement expires pursuant to the terms of SECTIONS 9.1
and 9.2, or (b) on a date mutually acceptable to the parties hereto that shall
be within 180 days of receipt of a termination notice by the applicable party
pursuant to either SECTION 9.3 or 9.4. Subject to the conditions set forth
below, at the Purchase Closing, Apple shall transfer and assign the Purchase
Assets to the Orthodontic Entity, and in consideration therefor, the Orthodontic
Entity shall (a) pay to Apple an amount in cash equal to the Fair Market Value
of the Purchase Assets as of the Purchase Closing and (b) assume the Orthodontic
Entity Related Liabilities. Each party shall execute such documents or
instruments as is reasonably necessary, in the opinion of each party and its
counsel, to effect the foregoing transaction. The Orthodontic Entity shall, and
shall use its best efforts to cause each shareholder of the Orthodontic Entity
to, execute such documents or instruments as may be necessary to cause the
Orthodontic Entity to assume the Orthodontic Entity Related Liabilities and to
release Apple from any liability or obligation with respect thereto.
SECTION 9.9 EXCEPTION TO PURCHASE. Notwithstanding anything contained
herein to the contrary, Apple shall not be obligated to sell the Purchase Assets
to the Orthodontic Entity if the Orthodontic Entity is not able to pay the
Purchase Price in cash and assume the Orthodontic Entity Related Liabilities at
the Purchase Closing. In such event, the Orthodontic Entity shall surrender the
Purchase Assets to Apple as of the Purchase Closing. If the Orthodontic Entity
fails to so surrender the Purchase Assets, Apple may, without prejudice to any
other remedy which it may have hereunder or otherwise, enter the Premises and
take possession of the Purchase Assets and expel or remove the Orthodontic
Entity and any other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor.
SECTION 9.10 EFFECT UPON TERMINATION. Upon the Termination Date, this
Agreement shall terminate and shall be of no further force and effect; provided,
however:
(a) Apple shall use its best efforts to cooperate with the
Orthodontic Entity and Orthodontist for the appropriate transfer of
management services.
(b) Each party hereto shall provide the other party with reasonable
access to books and records owned by it to permit such requesting party to
satisfy reporting and contractual obligations which may be required of it.
(c) On the Termination Date, any amounts due and owing but unpaid to
either Apple or the Orthodontic Entity (including, without limitation, any
amounts due under the Initial Working Capital Line) as of the Termination
Date shall be paid promptly by the appropriate party.
26
<PAGE>
(d) Any and all covenants and obligations of either party hereto
which by their terms or by reasonable implication are to be performed, in
whole or in part, after the termination of this Agreement, shall survive
such termination, including, without limitation, the obligations of the
parties pursuant to the following Sections:4.5, 4.7, 5.1, 5.2, 5.4, 5.5,
5.6, 5.7, 5.8, 6.4, 7.2, 8.5, 9.8, 9.10 and the applicable provisions of
ARTICLE X.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 ASSIGNMENT. Apple shall have the right to assign its rights
hereunder to AOI or any direct or indirect wholly owned subsidiary of Apple. The
Orthodontic Entity and Orthodontist hereby agree that Apple has the right to
grant a security interest in its rights hereunder to any lending institution
from which Apple or the AOI obtains financing. The Orthodontic Entity and
Orthodontist shall not have the right to assign their rights or obligations
hereunder (i) to any person who is not a graduate of an accredited orthodontic
program or (ii) to any person who is a graduate of an accredited orthodontic
program without the prior written consent of Apple, which consent shall not be
unreasonably withheld. In the event the parties are unable to agree upon the
reasonableness of any such assignment, then each of Apple and the Orthodontist
shall each promptly thereafter select an arbitrator and Apple and the
Orthodontist shall each give prompt notice to the other of such appointment in
writing. The two arbitrators first appointed under the terms hereof shall,
within five (5) days after receipt of notification of selection, together select
a third arbitrator. The decision of the majority of arbitrators so appointed
shall be final and binding upon the parties hereto and may be enforced in any
court of competent jurisdiction. The expense of the arbitrators appointed by
each party shall be borne by the party appointing such arbitrator, and the
expense of the third arbitrator shall be borne by both parties equally. The
arbitrators shall give prompt notice in writing of their decision to each party.
SECTION 10.2 AMENDMENTS. This Agreement shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modification(s) or amendment(s) shall be attached hereto.
SECTION 10.3 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
SECTION 10.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
SECTION 10.5 ATTORNEYS' FEES. If legal action is commenced by either party
to enforce or defend its rights under this Agreement, the prevailing party in
such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
27
<PAGE>
SECTION 10.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decision, a
regulatory agency or legal counsel in such a manner as to indicate that this
Agreement or any provision hereof may be in violation of such laws or
regulations, the Orthodontic Entity, Orthodontist and Apple shall amend this
Agreement as necessary to preserve the underlying economic and financial
arrangements between the Orthodontic Entity, Orthodontist and Apple and without
substantial economic detriment to either party. To the extent any act or service
required of Apple in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of
orthodontics, the performance of said act or service by Apple shall be deemed
waived and forever unenforceable and the provisions of this SECTION 10.6 shall
be applicable. Neither party shall claim or assert illegality as a defense to
the enforcement of this Agreement or any provision hereof; instead, any such
purported illegality shall be resolved pursuant to the terms of this SECTION
10.6 and SECTION 10.10. In the event any governmental authority, agency or court
institutes proceedings against Apple, the Orthodontic Entity or the Orthodontist
challenging the legality, validity or enforceability of any provision of this
Agreement, Apple agrees that the fees, expenses and disbursements of counsel
engaged to represent Apple, the Orthodontic Entity and the Orthodontist shall be
Apple Expenses.
SECTION 10.7 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
SECTION 10.8 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 10.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF ________. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE
PERFORMABLE IN ____________________________.
28
<PAGE>
SECTION 10.11 NO WAIVER; REMEDIES CUMULATIVE. Apple shall not by any act
(except by written instrument pursuant to SECTION 10.3 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of Apple, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. 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.
SECTION 10.12 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. 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.
SECTION 10.13 COMMUNICATIONS. The Orthodontic Entity, Orthodontist and
Apple agree that good communication between the parties is essential to the
successful performance of this Agreement, and each pledges to communicate fully
and clearly with the other on matters relating to the successful operation of
the Orthodontic Entity and the practice of orthodontics by Orthodontist.
SECTION 10.14 CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
SECTION 10.15 GENDER AND NUMBER. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
SECTION 10.16 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof",
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or provision of
this Agreement, unless otherwise noted.
SECTION 10.17 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
29
<PAGE>
If to Apple: Apple Orthodontix, Inc.
One West Loop South, Suite 100
Houston, Texas 77027
Fax No.: (713)964-6883
Attn: H. Steven Walton
with a copy to: Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Fax No.: (713) 752-4221
Attn: Richard S. Roth
If to the Orthodontic Entity:
------------------------------
with a copy to:
SECTION 10.18 CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize upon
any final court judgment arising out of this Agreement), such suit, action or
proceeding shall be instituted only in a state or federal court in Houston,
Texas. Each of the parties hereto consents to the IN PERSONAM jurisdiction of
any state or federal court in Houston, Texas and waives any objection to the
venue of any such suit, action or proceeding. The parties hereto recognize that
courts outside Houston, Texas may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Houston, Texas, the party instituting such proceeding shall indemnify
any other party hereto for any losses and expenses that may result from the
breach of the foregoing covenant to institute such proceeding only in a state or
federal court in Houston, Texas, including without limitation any additional
expenses incurred as a result of litigating in another jurisdiction, such as
reasonable fees and expenses of local counsel and travel and lodging expenses
for parties, witnesses, experts and support personnel.
SECTION 10.19 SERVICE OF PROCESS. Service of any and all process that may
be served on any party hereto in any suit, action or proceeding arising out of
this Agreement may be made in the manner and to the address set forth in SECTION
10.17 and service thus made shall be taken and held to be valid personal service
upon such party by any party hereto on whose behalf such service is made.
30
<PAGE>
SECTION 10.20 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 10.21 DEFINED TERMS. Terms used in the Exhibits attached hereto
with their initial letter capitalized and not otherwise defined therein shall
have the meanings assigned to such terms in this Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Orthodontic Entity:
__________________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
Orthodontist:
__________________________________
__________________________________
APPLE ORTHODONTIX, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
32
<PAGE>
LIST OF EXHIBITS
EXHIBIT DESCRIPTION
1.1(u) Orthodontic Entity Professional Employment Agreements
6.4 Form of Security Agreement
<PAGE>
EXHIBIT 1.1(U)
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
Apple Orthodontix of Texas, Inc.
---------------------------------------------
---------------------------------------------
and
---------------------------------------------
ORTHODONTIC ENTITY PROFESSIONAL EMPLOYMENT AGREEMENTS
<PAGE>
EXHIBIT 6.4
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
Apple Orthodontix of Texas, Inc.
---------------------------------------------
---------------------------------------------
and
---------------------------------------------
FORM OF SECURITY AGREEMENT
TriCap Partners, L.L.C. EXHIBIT 10.9
One West Loop South, Suite 100
Houston, Texas 77027
November 14, 1996
Apple Orthodontix, Inc.
5401 Williams Street
Corpus Christi, Texas 78411
Gentlemen:
The purpose of this letter is to confirm the engagement of TriCap
Partners, L.L.C. ("TriCap") to act as exclusive financial advisor to Apple
Orthodontix, Inc. (together with its affiliates and subsidiaries, "Apple") in
connection with one or more proposed Transactions. For purposes of this
agreement, a "Transaction" shall mean, whether in one or a series of
transactions, (i) Apple's initial public offering of common stock ("IPO"), (ii)
any post-IPO offering of securities of Apple and (iii) any post-IPO acquisition,
directly or indirectly, by Apple of all or a significant portion of the assets
or securities of, or any other effort by Apple to obtain control of or a
significant investment in, any orthodontic management services company involving
$5 million or more ("M&A Transaction").
1. In connection with its engagement hereunder, TriCap shall:
a. review, as appropriate, the business and operations of orthodontic
practices or management services companies proposed to be acquired
by Apple's management;
b. evaluate and recommend financial and strategic alternatives with
respect to a Transaction and participate in negotiations relating
thereto;
c. advise Apple as to the timing, structure and pricing of a
Transaction;
d. select and retain, on behalf of Apple, investment banking firms,
auditors, attorneys and other professional advisors reasonably
necessary to consummate a Transaction; and
e. provide such other financial advisory and investment banking
services as are customary for similar transactions and as may be
mutually agreed upon by Apple and TriCap.
2. As compensation for TriCap services hereunder, Apple hereby agrees to pay
TriCap:
<PAGE>
Apple Orthodontix, Inc.
November 14, 1996
Page 2
a. with respect to the IPO, a fee of $1,150,000 payable in cash
promptly upon consummation of the IPO; and
b. with respect to any post-IPO Transaction, a fee payable in cash
promptly upon consummation of a Transaction in accordance with the
following:
(i) 2% of the aggregate principal amount of any
non-convertible debt securities issued by Apple in any
offering;
(ii) the lesser of $1,050,000 or 3.5% of the gross proceeds
of any equity securities or any warrants, options (other
than options issued to employees or directors of Apple),
convertible securities or exchangeable securities issued
by Apple in any offering; and
(iii) one-half of any investment banking or financial advisory
fees payable by Apple in connection with any M&A
Transaction, which will constitute one-half of all such
fees payable by Apple pursuant to any such M&A
Transaction.
3. In addition to any fees that may be payable to TriCap hereunder (and
regardless of whether any post-IPO Transaction occurs), Apple hereby
agrees, from time to time upon request, to reimburse TriCap promptly for
travel, entertainment and other out-of-pocket expenses incurred in
performing its services hereunder, including the expenses of its legal
counsel. In addition, Apple agrees to reimburse TriCap for such expenses
and pay mutually agreed upon fees in connection with any other project for
which Apple engages TriCap.
4. The term of TriCap's engagement as financial advisor to Apple shall
commence on the date hereof and continue until the consummation of the
first post-IPO public offering by Apple of common stock or a security
convertible for, or exchangeable into, common stock for its own account
for cash, and thereafter on a month-to-month basis until terminated by
either TriCap or Apple.
5. Apple agrees to indemnify TriCap and related persons in accordance with
the indemnification letter attached hereto as Schedule A, the provisions
of which are incorporated herein in their entirety.
6. This agreement (a) shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to principals of such laws
relating to conflict of laws, (b) incorporates the entire understanding of
the parties with respect to the subject matter hereof and supersedes all
previous agreements (other than that certain Funding
<PAGE>
Apple Orthodontix, Inc.
November 14, 1996
Page 3
Agreement dated as of the date hereof) should they exist with respect
thereto, (c) may not be amended or modified except in a writing executed
by Apple and TriCap and (d) shall be binding upon and inure to the benefit
of Apple, TriCap and their respective successors and assigns. Apple
acknowledges that TriCap in connection with its engagement hereunder is
acting as an independent contractor with duties owing solely to Apple and
that, except as otherwise contemplated by Schedule A hereto, nothing in
this agreement is intended to confer upon any other person any rights or
remedies hereunder or by reason hereof.
This agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement. Please confirm that the foregoing is in accordance with your
understanding of our agreement by signing and returning to us a copy of this
letter.
Very truly yours,
TRICAP PARTNERS, L.L.C.
By: /s/ J. Christian Baker, III
Name: J. Christian Baker, III
Title: Manager
Accepted and agreed to as of the date set forth above:
APPLE ORTHODONTIX, INC.
By: /s/ John G. Vondrak, D.D.S.
Name: John G. Vondrak, D.D.S.
Title: Chief Executive Officer
<PAGE>
SCHEDULE A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this
engagement sometimes result in litigation and that TriCap's role is advisory,
Apple agrees to indemnify and hold harmless TriCap, its affiliates and each
person, if any, who controls TriCap, or any of its affiliates, within the
meaning of either Section 15 of the Securities Act of 1933, as amended (the
"Securities Act"), or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and their respective officers, directors,
employees and agents (collectively, the "Indemnified Parties"), to the fullest
extent permitted by law, from and against any and all losses, claims, damages
and liabilities, joint or several, related to or arising in any manner out of
any transaction, proposal or any other matter (collectively, the "Matters")
contemplated by the engagement of TriCap hereunder, and will promptly reimburse
the Indemnified Parties for all expenses (including fees and expenses of legal
counsel) as incurred in connection with the investigation of, preparation for or
defense of, or acting as a witness in connection with, any pending or threatened
claim related to or arising in any manner out of any Matter contemplated by the
engagement of TriCap hereunder, or any action or proceeding arising therefrom
(collectively, "Proceedings"), whether or not such Indemnified Party is a formal
party to any such Proceeding. Notwithstanding the foregoing, Apple shall not be
liable to an Indemnified Party in respect of any losses, claims, damages,
liabilities or expenses that a court of competent jurisdiction shall have
determined by final judgment resulted solely from the gross negligence or
willful misconduct of such Indemnified Party. The indemnification provided
herein shall be applicable whether or not a negligent act or omission of the
Indemnified Party seeking indemnification is alleged or proven. Apple further
agrees that it will not, without the prior written consent of TriCap, settle,
compromise or consent to the entry of any judgment in any pending or threatened
Proceeding in respect of which indemnification may be sought hereunder (whether
or not TriCap or any Indemnified Party is an actual or potential party to such
Proceeding), unless such settlement, compromise or consent includes a full and
unconditional release of TriCap and each other Indemnified Party hereunder from
all liability arising out of such Proceeding.
Apple agrees that if any indemnification or reimbursement sought
pursuant to this letter were, for any reason, not be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then Apple shall contribute to the amount paid or
payable by such Indemnified Party in respect of losses, claims, damages,
liabilities and expenses in such proportion as is appropriate to reflect the
relative benefits to Apple and its stockholders on the one hand, and TriCap on
the other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to Apple and/or its stockholders and to TriCap with respect to
TriCap's engagement shall be deemed to be in the same proportion as (i) the
total value paid or received or to be paid or received by Apple and/or its
stockholders pursuant to the Matters (whether or not
<PAGE>
consummated) for which TriCap is engaged to render financial advisory services
bears to (ii) the fees paid to TriCap in connection with such engagement. In no
event shall the Indemnified Parties, in the aggregate, contribute or otherwise
be liable for an amount in excess of the aggregate amount of fees actually
received by TriCap pursuant to such engagement (excluding amounts received by
TriCap as reimbursement of expenses).
Apple further agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to
Apple for or in connection with TriCap's engagement hereunder except for losses,
claims, damages, liabilities or expenses that a court of competent jurisdiction
shall have determined by final judgment resulted solely from the gross
negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of Apple shall be in addition to any
liability that Apple may otherwise have and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
Apple or any Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth
herein shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) any party hereto, (iii)
any termination or the completion or expiration of this letter or TriCap's
engagement and (iv) whether TriCap shall or shall not be called upon to render
any formal or informal advice in the course of such engagement.
Very truly yours,
TRICAP PARTNERS, L.L.C.
By:/s/ J. CHRISTIAN BAKER, III
Manager
ACCEPTED AND AGREED TO:
APPLE ORTHODONTIX, INC.
By:/s/ JOHN G. VONDRAK, D.D.S.
Chief Executive Officer
Apple Orthodontix, Inc.
One West Loop South, Suite 100
Houston, Texas 77027
May 11, 1997
TriCap Partners, L.L.C.
One West Loop South, Suite 100
Houston, Texas 77027
Gentlemen:
Please refer to that certain letter agreement (the "Agreement;" terms used
in this letter and not otherwise defined are used as defined in the Agreement)
dated November 14, 1996, between Apple Orthodontix, Inc. ("Apple") and TriCap
Partners, L. L. C. ("TriCap"), relating to Apple's engagement of TriCap as its
financial advisor in connection with one or more proposed Transactions.
A. The Agreement provides for cash compensation to be paid for financial
advisory services rendered by TriCap to Apple. TriCap still desires to receive
such cash compensation; however, as a result of the conditions imposed by Bear,
Stearns & Co., Inc. ("Bear, Stearns") in connection with Bear, Stearns'
commitment to be lead underwriter of the IPO, TriCap and Apple hereby agree to
amend and restate in their entirety the provisions of Paragraph 2 of the
Agreement to decrease the amount of cash compensation payable to TriCap as
follows:
"2. As compensation for TriCap services hereunder, Apple hereby agrees to:
a. pay to TriCap a fee of $500,000 in cash on the date of the
closing of the IPO;
b. issue to TriCap a warrant (the "Warrant") (in the form attached
hereto as Exhibit A) to purchase shares of Class A Common Stock
of the Company (the "Stock"); and
c. execute and deliver to TriCap a Registration Rights Agreement (in
the form attached hereto as Exhibit B).
B. TriCap and Apple hereby agree to amend and restate in their
entirety the provisions of Paragraph 4 of the Agreement as follows:
"4. The term of TriCap's engagement as financial advisor to Apple shall
commence on November 14, 1996, and shall continue until, and terminate
upon, the consummation of the IPO. The parties agree that all obligations
accruing prior to the date of termination and the obligation set forth in
Paragraph 5 shall survive termination."
<PAGE>
C. The provisions of the Agreement other than Paragraphs 2 and 4,
including without limitation Paragraphs 1, 3, 5 and 6 and Schedule A, are not
amended and the parties hereby ratify and confirm these provisions in their
entirety.
This letter agreement may be executed in two or more counterparts, each of
shall be deemed to be an original, but all of which shall constitute the same
agreement. Please confirm that the foregoing is in accordance with your
understanding of our agreement by signing and returning to us a copy of this
letter.
Very truly yours,
APPLE ORTHODONTIX, INC.
/s/ John G. Vondrak, D.D.S.
John G. Vondrak, D.D.S.
Chief Executive Officer
Accepted and agreed to as of the date set forth above:
TRICAP PARTNERS, L.L.P.
/s/ A. John Kreft
A. John Kreft
Manager
<PAGE>
EXHIBIT A
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
---------------------
Warrant No. 1
WARRANT
TO
PURCHASE SHARES OF CLASS A COMMON STOCK
OF
APPLE ORTHODONTIX, INC.
---------------------
This Warrant dated as of April 24, 1997 (this "WARRANT") certifies that,
for good and valuable consideration, APPLE ORTHODONTIX, INC., a Delaware
corporation (the "Company"), grants to TRICAP PARTNERS, L.L.C. ("TriCap"), and,
together with any transferee of this Warrant or Warrant Shares (as defined
below) (the "Warrantholder" or "Warrantholders"), subject to the terms and
conditions set forth herein, the right to subscribe for and purchase from the
Company that number of shares (the "Warrant Shares") of the Company's Class A
common stock, par value $.01 per share ("Common Stock"), which is equal to the
quotient of (i) $1,700,000 divided by (ii) an amount determined by utilizing the
BlackScholes equation and the following variables: the initial public offering
price per share of Common Stock, the Expiration Date (as defined below), a risk
free interest rate equal to the five-year U.S. treasury note rate as quoted in
the WALL STREET JOURNAL on the Initial Exercise Date (as defined below) and a
volatility rate equal to 67.5%. This Warrant shall be exercisable during the
period from and after 9:00 a.m. Houston, Texas time on the date (the "Initial
Exercise Date") of the closing of the Company's initial public offering of
Common Stock ("IPO") and to and including 5:00 p.m. Houston, Texas time on the
date that is five years after the closing date of the IPO (the "Expiration
Date") at a purchase price per share equal to the initial per share public
offering price of Common Stock offered to the public in the Company's
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IPO (the "Exercise Price"). The Exercise Price and the number of Warrant Shares
are subject to adjustment from time to time as provided in Section 5.
1. DURATION AND EXERCISE OF WARRANT; LIMITATION EXERCISE PAYMENT OF
TAXES.
1.1 DURATION AND EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by
the Warrantholder of record, in whole, or from time to time in part
(but covering at least the greater of 1,000 shares or the remaining
unexercised portion of this Warrant), by surrender of this Warrant,
accompanied by the Exercise Form annexed hereto (the "Exercise
Form") duly executed by the Warrantholder of record and specifying
the number of Warrant Shares or Net Warrant Shares to be purchased,
to the Company at the office of the Company located at One West Loop
South, Suite 100, Houston, Texas 77027 (or such other office or
agency of the Company as it may designate by notice to the
Warrantholder at the address of such Warrantholder appearing on the
books of the Company) during normal business hours on any day (a
"Business Day") other than a Saturday, Sunday or a day on which the
Company is otherwise closed for business (a "Nonbusiness Day") on or
after 9:00 a.m. Houston, Texas time on the Initial Exercise Date but
not later than 5:00 p.m. on the Expiration Date (or 5:00 p.m. on the
next succeeding Business Day, if the Expiration Date is a
Nonbusiness Day), delivery of payment to the Company of the Exercise
Price for the number of Warrant Shares or cash in lieu thereof
specified in the Exercise Form and such documentation as to the
identity and authority of the Warrantholder as the Company may
reasonably request.
(b) Each Warrantholder may (i) pay the Exercise Price in cash,
by certified or official bank check payable to the order of the
Company, or (ii) exercise this Warrant for "Net Warrant Shares" or
cash in lieu of Net Warrant Shares. The number of Net Warrant Shares
will be determined as described by the following formula: Net
Warrant Shares = [WS x (MP-EP)]/MP. "WS" is the number of Warrant
Shares issuable upon exercise of this Warrant or portion thereof.
"MP" is the Market Price of the Common Stock. "Market Price" shall
mean the average of the closing prices of the Common Stock on the
business day immediately preceding the date of the Exercise Form (or
other event for which a Market Price is determined) on all domestic
exchanges on which the Common Stock is then listed, or, if there
shall have been no sales on any such exchange on such day, the
average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if the Common Stock shall not
be so listed, the average of the representative bid and asked prices
quoted in the NASDAQ National Market System as of 3:30 P.M., New
York time, on each such day, or if the Common Stock shall not be
quoted in the NASDAQ National Market System, the average of the high
and low bid and asked prices on each such day in the domestic
over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization. If at
any time the
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Common Stock is not listed on any domestic exchange or quoted in the
NASDAQ National Market System or the domestic over-the-courter
market, the "Market Price" shall be deemed to be the highest of (i)
the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of
Directors of the Company, as at the last day of any month ending
within 60 days preceding the date as of which the determination is
to be made, (ii) the fair value thereof, which shall be reasonably
determined by the Board of Directors of the Company as of a date
which is within 15 days prior to the date as of which the
determination is to be made or (iii) the Exercise Price in effect
immediately prior to the determination of Market Price. "EP" shall
mean the Exercise Price.
(c) Certificates for the Warrant Shares specified in the
Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within five business days, after the
date the Company receives the Exercise Form. The stock certificates
so delivered shall be in denominations specified by the
Warrantholder, and shall be issued in the name of the Warrantholder
or, if permitted by subsection 1.4 and in accordance with the
provisions thereof, such other name as shall be designated in the
Exercise Form. Such Warrant Shares shall be deemed by the Company to
be issued to the Warrantholder that is the record holder of such
Warrant Shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for the Warrant
Shares as aforesaid.
(d) If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of the certificates for
the Warrant Shares, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares,
which new Warrant shall in all other respects be identical with this
Warrant.
(e) No adjustments or payments shall be made on or in respect
of Warrant Shares issuable on the exercise of this Warrant for any
cash dividends paid or payable to holders of record of Common Stock
prior to the date as of which the Warrantholder shall be deemed to
be the record holder of such Warrant Shares.
(f) Notwithstanding anything herein to the contrary, upon
receipt of the Exercise Price (unless the Warrant is exercised for
Net Warrant Shares) the Company may elect to pay the Warrantholder,
in lieu of Warrant Shares, an amount of cash equal to the product of
the Market Price multiplied by the number of Warrant Shares (or Net
Warrant Shares as applicable) specified in the Exercise Form.
Payment shall be made as promptly as practicable, and in any event
within 3 business days after the date the Company receives the
Exercise Form, in same day funds payable to the order of the
Warrantholder.
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1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised prior
to 5:00 p.m. on the Expiration Date (or the next succeeding Business Day,
if the Expiration Date is a Nonbusiness Day), this Warrant, or any new
Warrant issued pursuant to Section 1.1, shall cease to be exercisable and
shall become void and all rights of the Warrantholder hereunder shall
cease. This Warrant shall not be exercisable and no Warrant Shares shall
be issued hereunder, prior to 9:00 a.m. Houston, Texas time on the Initial
Exercise Date.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; PROVIDED, HOWEVER, that
the Warrantholder shall be required to pay any and all taxes which may be
payable in respect of any transfer involved in the issuance and delivery
of any certificates for Warrant Shares in a name other than that of the
then Warrantholder as reflected upon the books of the Company.
1.4 TRANSFER: RESTRICTION ON TRANSFER AND LEGEND.
(a) Subject to the provisions of Section 1.4(b) below, this
Warrant shall be transferrable, in whole or in part, at any time
after the closing date of the IPO, without the consent of the
Company, by notice from Warrantholder. The Company shall keep at its
principal office a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant. The Company
will not at any time, except upon the dissolution, liquidation or
winding up of the Company, close such register so as to prevent or
delay the exercise or transfer of this Warrant.
(b) Neither this Warrant nor any of the Warrant Shares, nor
any interest or participation in either, may be in any manner
transferred or disposed of, in whole or in part except in compliance
with applicable United States federal and state securities laws and
paragraph (c) below. Notwithstanding anything herein to the
contrary, the Company acknowledges that distribution of the Warrant
or Warrants to the members of TriCap shall be permissible.
(c) A Warrantholder desiring to sell all or any part of his
Warrant Shares or this Warrant to any person engaged in the business
of providing orthodontic practice management services shall give
notice in writing to the Company stating that the selling
Warrantholder has received a bona fide offer for the purchase of his
Warrant Shares or this Warrant (a "Bona Fide Offer"), the number of
Warrant Shares or portion of the Warrant to be sold, the name and
address of each such person or entity desiring to purchase such
Warrant Shares or Warrant, and the sales price and terms of payment
of the Bona Fide Offer. Such notice shall constitute an offer to
sell all or part of the Warrant Shares or this Warrant to the
Company upon the price and terms proposed in the Bona Fide Offer.
Such offer shall be effective for three business days after the
receipt of such notice by the Company. If at the end of such three
business days the Company has not elected to purchase all of the
offering Warrantholder's Warrant
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Shares or this Warrant, the offering Warrantholder may sell any
unpurchased Warrant Shares or this Warrant pursuant to the Bona Fide
Offer for a period of three business days, after which time he shall
again be subject to the terms of this paragraph 1.4(c).
Each certificate for Warrant Shares and any Warrant issued at any
time in exchange or substitution for any Warrant bearing such a legend
shall bear a legend similar in effect to the foregoing paragraph unless,
in the opinion of counsel for the Company, the Warrant need no longer be
subject to the restriction contained herein. The provisions of this
subsection 1.4 shall be binding upon all subsequent holders of this
Warrant, if any. Warrant Shares transferred to the public as expressly
permitted by, and in accordance with, the provisions of this Warrant shall
thereafter cease to be deemed to be "Warrant Shares" for purposes hereof.
1.5 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon
surrender at the principal office of the Company on any Business Day,
without charge to any Warrantholder, except as provided below. Upon any
such division, and, if permitted by subsection 1.4 and in accordance with
the provisions thereof, the Warrants may be transferred of record to a
name other than that of the Warrantholder of record; PROVIDED, HOWEVER,
that the Warrantholder shall be required to pay any and all transfer taxes
with respect thereto.
1.6 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants as follows:
(a) EXISTENCE. The Company is a corporation duly organized and
validly existing under the laws of the State of Delaware and is
authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or
in the aggregate, could not reasonably be expected to have a
material adverse effect on the Company.
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant, to grant,
issue and deliver this Warrant and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price,
to issue and deliver the shares of Common Stock issuable upon
exercise of the Warrant. This Warrant has been duly executed and
delivered by the Company.
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance, and the Company shall at all times
keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of
the rights of purchase represented by this Warrant, and such shares,
when issued upon receipt of payment therefor in
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accordance with the terms of the this Warrant, will be legally and
validly issued, fully paid and nonassessable and will be free of any
preemptive rights of stockholders.
(d) EXECUTION AND DELIVERY. Neither the execution or delivery
of this Warrant nor the consummation of the transactions herein
contemplated does or will result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the property or assets of
the Company is subject, nor will such action result in any violation
of any provision of the Certificate of Incorporation or Bylaws of
the Company or any statute or any order, rule or regulation or any
court or governmental agency or body having jurisdiction over the
Company or any of its properties.
(e) VALID AND BINDING OBLIGATIONS. This Warrant, when duly
executed and delivered, will constitute legal, valid and binding
obligations of the Company, enforceable in accordance with its
terms, subject to any applicable bankruptcy, insolvency or other
laws of general application affecting creditors' rights and judicial
decisions interpreting any of the foregoing.
1.7 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE WARRANTHOLDER.
The Warrantholder hereby represents, warrants and covenants that he has
not offered to purchase or purchased any shares of Common Stock during the
five-day period prior to the date the Market Price is calculated.
2. RESERVATION AND LISTING OF SHARES.
All Warrant Shares which are issued upon the exercise of the rights
represented by this Warrant shall, upon issuance and payment of the Exercise
Price, be validly issued, fully paid and nonassessable and free from all taxes,
liens, security interests, charges and other encumbrances with respect to the
issue thereof other than taxes in respect of any transfer occurring
contemporaneously with such issue. During the period within which this Warrant
may be exercised, the Company shall at all times have authorized and reserved,
and keep available free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant, and shall, at the
Company's expense, procure such listing thereof (subject to official notice of
issuance) as then may be required on all stock exchanges on which the Common
Stock is then listed or provide such required notices to the NASDAQ as required
with respect to the reservation and issuance of such shares. The Company shall,
from time to time, take all such action as may be required to assure that the
par value per share of the Warrant Shares is at all times equal to or less than
the then effective Exercise Price.
3. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
If permitted by subsection 1.4 or 1.5 and in accordance with the
provisions thereof, upon surrender of this Warrant to the Company with a duly
executed instrument of assignment and
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funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant of like tenor in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor. The term "Warrant" as used herein includes any Warrants issued in
substitution or exchange of this Warrant.
4. OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1, 1.4 and 1.5 or in Section 3.
5. CERTAIN ADJUSTMENTS.
The Exercise Price at which Warrant Shares may be purchased hereunder, and
the number of Warrant Shares to be purchased upon exercise hereof, are subject
to change or adjustment after the Initial Exercise Date as follows:
5.1 GENERAL. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall after the Initial Exercise Date
(i) pay a dividend in shares of Common Stock or make a distribution
in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock or (iv) issue by reclassification of its
shares of Common Stock other securities of the Company (including
any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), the
number of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted so that the Warrantholder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company that the Warrantholder would have owned or have been
entitled to receive after the happening of any of the events
described above, had this Warrant been exercised immediately prior
to the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall after the Initial Exercise Date:
(i) issue rights, options or warrants generally to
holders of its outstanding Common Stock, without any charge to
such holders, entitling them at the time of such issuance to
subscribe for or purchase, pursuant
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to such an issuance, shares of Common Stock at a price per
share which is lower at the record date for the determination
of stockholders entitled to receive such rights, options or
warrants than the then-current Market Price per share of
Common Stock, or
(ii) distribute generally to holders of its shares of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in paragraph (a) of this subsection
5.1) or rights, options or warrants, or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock,
(A) the Company shall deliver to each Warrantholder a notice of such
issuance or distribution at lease 3 business days prior to the
record date established therefor, and (B) make appropriate
adjustments to the number of Warrant Shares purchasable upon the
exercise of the Warrant and/or the Exercise Price in order to
preserve the relative rights and interests of the Warrantholders,
such adjustments to be made by the good faith determination of the
Board of Directors of the Company.
5.2 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then
current Exercise Price to any amount, consistent with applicable law,
deemed appropriate by the Board of Directors of the Company.
5.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided,
the Company shall promptly mail first class, postage prepaid, to all
Warrantholders, notice of such adjustment.
5.4 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon
the exercise of this Warrant.
5.5 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
In case of any consolidation of the Company with or merger of the Company
into another person or in case of any sale, transfer or lease to another
corporation of all or substantially all of the assets of the Company, the
Company or such successor or purchaser, as the case may be, shall execute
with the Warrantholders an agreement that the Warrantholders shall have
the right thereafter upon payment of the Exercise Price in effect
immediately prior to such action to purchase upon exercise of each Warrant
the kind and amount of shares and other securities and property that the
holder thereof would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had such
Warrant been exercised immediately prior to such action; PROVIDED,
HOWEVER, that no adjustment in respect of cash dividends, interest or
other income on or from such shares or other securities and property shall
be made during the
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term of this Warrant or upon the exercise of this Warrant. Such agreement
shall provide for adjustment, which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 5. The
provisions of this subsection 5.5 shall apply similarly to successive
consolidations, mergers, sales, transfers or leases.
6. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Warrantholders against impairment. Without limiting the generality of the
foregoing, the Company will (a) not change the par value of any shares of Common
Stock receivable upon the exercise of this Warrant to an amount greater than the
amount payable therefor upon such exercise, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, (c) obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant, and (d) not undertake
any reverse stock split, combination, reorganization or other reclassification
of its capital stock which would have the effect of making this Warrant
exercisable for less than one share of Common Stock.
Upon the request of the a Warrantholder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to such Warrantholder, the continued validity of this
Warrant and the Company's obligations hereunder.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the Company and the Warrantholders with respect to this Warrant
and the Warrant Shares.
7.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholders and
holders of Warrant Shares and their respective heirs, legal
representatives, successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other
than the Company, the Warrantholders and holders of Warrant Shares, or
their respective heirs, legal representatives, successors or assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Warrant or the Warrant Shares.
7.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholders. The Company, any Warrantholder or holders of Warrant
Shares may, by an instrument in writing, waive compliance by the other
party with any term or provision of this Warrant
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on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
7.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
7.5 FURTHER ASSURANCES. Each of the Company, the Warrantholders and
holders of Warrant Shares shall do and perform all such further acts and
things and execute and deliver all such other certificates, instruments
and/or powers of attorney as may be necessary or appropriate as any party
hereto may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Warrant.
7.6 NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing
and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered first class mail, postage
prepaid, to the parties hereto at the following addresses or at such other
address as any party hereto shall hereafter specify by notice to the other
party hereto:
(a) if to the Company, addressed to:
Apple Orthodontix, Inc.
One West Loop South, Suite 100
Houston, Texas 77027
Attention: H. Steven Walton
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of
the Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on
the date of personal delivery thereof or on the third Business Day after
the mailing thereof.
7.7 SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable any other term
or provision of this Warrant or affecting the validity or enforceability
of any of the terms or provisions of this Warrant in any other
jurisdiction.
7.8 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof,
the Company shall pay to the
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Warrantholder an amount in cash equal to such fraction multiplied by the
then-current market price.
7.9 RIGHTS OF THE HOLDER. No Warrantholder shall, solely by virtue
of this Warrant, be entitled to any rights of a stockholder of the
Company, either at law or in equity.
7.10 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Texas and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts made and performed in Texas.
7.11 EXPENSES. The Company shall pay all reasonable legal and other
reasonable out-of-pocket expenses of the Warrantholders and their counsel
in connection with the exercise and sale of the Warrant Shares (including
reasonable brokers' commissions incurred by the Warrantholders upon the
sale of Warrant Shares) as contemplated by this Warrant. The Company
agrees to reimburse TriCap upon demand for its reasonable out-of-pocket
costs and reasonable expenses incurred in connection with the preparation,
review, negotiation, execution and delivery of this Warrant and all other
related documents.
7.12 RIGHT TO INFORMATION. The Company will provide to a
Warrantholder and to all holders of Warrant Shares, on a timely basis,
copies of all documents and reports filed with the Securities and Exchange
Commission (the "Commission") and publicly available annual and quarterly
financial statements, as may be requested in writing by the Warrantholder
or as otherwise agreed in another agreement between the Company and the
Warrantholder.
7.13 MERGER OR CONSOLIDATION OF THE COMPANY. So long as this Warrant
remains in effect, the Company will not merge or consolidate with or into,
or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as
the case may be, (i) shall be the Company or (ii) if not the Company,
shall expressly assume, by supplemental agreement executed and delivered
to the Warrantholders, the performance and observance of each and every
covenant and condition of this Warrant to be performed and observed by the
Company under this Warrant.
7.14 RULE 144. With a view to making available to Warrantholders the
benefits of certain rules of the Commission that may permit the sale of
shares of Common Stock to the public without registration, the Company
hereby covenants and agrees to use its reasonable business efforts after
the Initial Exercise Date to file in a timely manner all reports and other
documents required to be filed by it under the Securities Act of 1933, as
amended the "Act" and the Securities Exchange Act of 1934, as amended, and
the rules and regulations adopted by the Commission thereunder necessary
to permit sales under Rule 144 under the Act, and the Company will take
such further action which does not have material cost to the Company to
the extent required from time to time to enable
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Warrantholders to sell shares of Common Stock without registration under
the Act within the limitation of the exemptions provided by (a) Rule 144
under the Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
written request of a Warrantholder, the Company will deliver to such
Warrantholder a written statement as to whether it has complied with such
requirements.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
APPLE ORTHODONTIX, INC.
By:/s/ JOHN G. VONDRAK, D.D.S.
John G. Vondrak, D.D.S.
Chief Executive Officer
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EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase of the
Warrant Shares, and herewith tenders payment for such Warrant Shares to the
order of APPLE ORTHODONTIX, INC., in the amount of $ in accordance with the
terms of this Warrant. The undersigned requests that a certificate for such
Warrant Shares be registered in the name of
and that such certificate be delivered to ,
whose address is .
Date: Signature:
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of April 24, 1997, by and among Apple Orthodontix, Inc., a Delaware
corporation ("Apple"), and TriCap Partners, L.L.C. (the "Stockholder" and,
collectively with any assignee, the "Stockholders").
WHEREAS, Apple desires to provide the Stockholders with an opportunity to
achieve liquidity in their respective investments in Apple by granting the
Holders the right to participate in certain future public offerings of class A
common stock, par value $.001 per share, of Apple ("Common Stock");
WHEREAS, the Stockholder is this date accepting from the Company a warrant
(the "Warrant") entitling the Stockholder to purchase certain shares of Common
Stock; and
WHEREAS, as a condition to its acceptance of the Warrant, the Stockholder
is requiring the Company to enter into this Agreement relating to the
registration of shares of Common Stock which may be issued upon exercise of the
Warrant;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1 . DEFINITIONS. The following capitalized terms shall have the meanings
assigned to them in this SECTION 1 or in the parts of this Agreement referred to
below:
CODE: the Internal Revenue Code of 1986, as amended, and any successor
thereto.
COMMISSION: the Securities and Exchange Commission, and any successor
thereto.
DEMAND REGISTRATION: as defined in SECTION 3.
EFFECTIVE TIME: as defined in SECTION 3.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and any
successor thereto, and the rules and regulations thereunder.
EXEMPT OFFERING: as defined in SECTION 2.
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REGISTRABLE COMMON: shares of Common Stock issuable to the Stockholder
pursuant to the Warrant, and any additional shares of Common Stock issued or
distributed in respect of any other shares of Registrable Common by way of a
stock dividend or distribution or stock split or in connection with a
combination of shares, recapitalization, reorganization, merger, consolidation
or otherwise. For purposes of this Agreement, shares of Registrable Common will
cease to be Registrable Common when and to the extent that (i) a registration
statement covering such shares has been declared effective under the Securities
Act and such shares have been disposed of pursuant to such effective
registration statement, (ii) such shares are sold pursuant to Rule 144 or (iii)
such shares have been otherwise transferred to a person or entity, other than
pursuant to SECTION 11 hereof.
REGISTRATION NOTICE: as defined in SECTION 2.
RULE 144: Securities Act Rule 144 (or any similar or successor provision
under the Securities Act).
SECURITIES ACT: the Securities Act of 1933, as amended, and any successor
thereto, and the rules and regulations thereunder.
SELLING STOCKHOLDER: as defined in SECTION 12.
2. PIGGYBACK REGISTRATION RIGHTS. At any time before November 14, 2001, whenever
Apple proposes to register any Common Stock for its own account, or for the
account of any other person holding registration rights, under the Securities
Act for a public offering for cash, other than a registration relating to the
offering or issuance of shares in connection with (i) employee compensation or
benefit plans or (ii) one or more acquisition transactions under a Registration
Statement on either Form S-1 or Form S-4 under the Securities Act (or a
successor to either Form S-1 or Form S-4) (any such offering or issuance being
an "Exempt Offering"), Apple will give each Stockholder written notice of its
intent to do so (a "Registration Notice") at least 20 days prior to the filing
of the related registration statement with the Commission. Such notice shall
specify the approximate date on which Apple proposes to file such registration
statement and shall contain a statement that the Stockholders are entitled to
participate in such offering and shall set forth the number of shares of
Registrable Common (as hereinafter defined) that represents the best estimate of
the lead managing underwriter (or if not known or applicable, Apple) that will
be available for sale by the holders of Registrable Common in the proposed
offering. If Apple shall have delivered a Registration Notice, each Stockholder
shall be entitled to participate on the same terms and conditions as Apple in
the public offering to which such Registration Notice relates and to offer and
sell shares of Registrable Common therein only to the extent provided in this
SECTION 2. Each Stockholder desiring to participate in such offering shall
notify Apple no later than ten days following receipt of the Registration Notice
of the aggregate number of shares of Registrable Common that such Stockholder
then desires to sell in the offering. Each Stockholder desiring to participate
in such public offering may include shares of Registrable Common in the
registration statement relating to the offering to the extent that the inclusion
of such shares shall not reduce the number of shares of Common Stock to be
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offered and sold by Apple to be included therein. If the lead managing
underwriter selected by Apple for a public offering (or, if the offering is not
underwritten, a financial advisor to Apple) determines that marketing factors
require a limitation on the number of shares of Registrable Common to be offered
and sold in such offering, there shall be included in the offering only that
number of shares of Registrable Common, if any, that such lead managing
underwriter or financial advisor, as the case may be, reasonably and in good
faith believes will not jeopardize the success of the offering, PROVIDED that if
the lead managing underwriter or financial advisor, as the case may be,
determines that marketing factors require a limitation on the number of shares
of Common Stock to be offered and sold as aforesaid and so notifies Apple in
writing, the number of shares of Common Stock to be offered and sold by holders
desiring to participate in the offering, shall be allocated among such holders
on a pro rata basis based on their holdings of Common Stock. Apple shall have
the right at any time to reduce the number of shares requested by any
Stockholder to be included in such registration to the extent that Apple
reasonably concludes that inclusion of such shares is likely to jeopardize the
non-recognition status under the Code of any acquisition transaction consummated
pursuant to any of the acquisition agreements entered into by Apple and one of
its founding orthodontic practices; PROVIDED that any determination to exclude
shares from any such registration pursuant to this provision shall be based on
advice of tax counsel to Apple or its independent accountants.
3. DEMAND REGISTRATION RIGHTS. At any time before May 31, 2002, the holders of
at least 33% of the shares of Registrable Common then outstanding may request
(the Stockholders making such request are herein referred to as the "Requesting
Holders") in writing that Apple file a registration statement under the
Securities Act covering the registration of all or a part of the shares of
Registrable Common then held by such Stockholders (a "Demand Registration").
Within ten days of the receipt of such request, Apple shall give written notice
of such request to all other Stockholders and shall use its best efforts to
effect as soon as practicable the registration under the Securities Act in
accordance with SECTION 4 hereof (including without limitation, the execution of
an undertaking to file post-effective amendments) of all shares of Registrable
Common which the Stockholders request be registered within 30 days after the
mailing of such notice; PROVIDED, HOWEVER, that (i) Apple shall not be obligated
to cause a registration statement respecting a Demand Registration to be filed
until the date that is one month before the expiration of any lock-up period set
forth in an underwriting agreement to which Apple is a party, and (ii) Apple
shall be obligated to effect only one Demand Registration pursuant to this
SECTION 3. In connection with a Demand Registration, the holders of a majority
of shares of Registrable Common included in such Demand Registration, in their
sole discretion, shall determine whether (a) to proceed with, withdraw from or
terminate such offering, (b) to select, subject to the approval of Apple (which
approval shall not be unreasonably withheld), a managing underwriter or
underwriters to administer such offering, (c) to enter into an underwriting
agreement for such offering and (d) to take such actions as may be necessary to
close the sale of Registrable Common contemplated by such offering, including,
without limitation, waiving any conditions to closing such sale that may not
have been fulfilled. In the event such holders exercise their discretion under
this paragraph to terminate a proposed Demand Registration, the terminated
Demand Registration shall not constitute the Demand Registration under this
SECTION 3, if the determination to terminate such Demand Registration
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(i) follows the exercise by Apple of any of its rights provided by the last two
paragraphs of this SECTION 3 or (ii) results from a material adverse change in
the condition (financial or other), results of operations or business of the
Company. Notwithstanding the foregoing, a registration will not count as the
Demand Registration under this SECTION 3 until such registration has become
effective and unless the Requesting Holders are able to register and sell at
least 50% of the shares of Registrable Common requested by them to be included
in such registration.
Notwithstanding the preceding paragraph, if at the time of any request by
the Requesting Holders for a Demand Registration, Apple has fixed plans to file
within 90 days after such request for the sale of any of its securities in a
public offering under the Securities Act (other than an Exempt Offering), no
Demand Registration shall be initiated under this SECTION 3 until 20 days after
the effective date of such registration unless Apple is no longer proceeding
diligently to effect such registration; PROVIDED that Apple shall provide the
holders of Registrable Common the right to participate in such public offering
pursuant to, and subject to, SECTION 2 hereof.
4. REGISTRATION PROCEDURES. In connection with registrations under SECTIONS 2
AND 3 hereof, and subject to the terms and conditions contained therein, Apple
shall (a) use its best efforts to prepare and file with the Commission as soon
as reasonably practicable, a registration statement with respect to the
Registrable Common and use its best efforts to cause such registration to
promptly become and remain effective for a period, in the case of a registration
pursuant to SECTION 2, of at least 120 days, or, in the case of a registration
pursuant to SECTION 3 and subject to SECTION 6 hereof, until all the shares
Registrable Common requested to be registered thereby have been sold thereunder
(or, in each such case, such shorter period during which holders shall have sold
all Registrable Common which they requested to be registered); PROVIDED,
HOWEVER, that such 120-day period shall be extended for a period equal to the
period that a Stockholder agrees to refrain from selling any securities included
in such registration in accordance with SECTION 8 hereof; (b) prepare and file
with the Commission such amendments (including post-effective amendments) to
such registration statement and supplements to the related prospectus to
appropriately reflect the plan of distribution of the securities registered
thereunder until the completion of the distribution contemplated by such
registration statement or for so long thereafter as a dealer is required by law
to deliver a prospectus in connection with the offer and sale of the shares of
Registrable Common covered by such registration statement and/or as shall be
necessary so that neither such registration statement nor the related prospectus
shall contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and so that such registration statement and the related
prospectus will otherwise comply with applicable legal requirements; (c) provide
to any Stockholder requesting to include shares of Registrable Common in such
registration statement and a single counsel for all holders of Registrable
Common requesting to include shares of Registrable Common in such registration
statement, which counsel shall be selected by the holders of a majority of
shares of Registrable Common requested to be included in such registration
statement and shall be reasonably satisfactory to Apple, an opportunity to
review and provide comments with respect to such registration statement (and any
post-effective amendment thereto) prior to such registration statement (or
post-effective amendment) becoming
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effective; (d) use its best efforts to register and qualify the Registrable
Common covered by such registration statement under applicable securities or
"Blue Sky" laws of such jurisdictions as the holders shall reasonably request
for the distribution of the Registrable Common; (e) take such other actions as
are reasonable and necessary to comply with the requirements of the Securities
Act; (f) furnish such number of prospectuses (including preliminary
prospectuses) and documents incident thereto as a Stockholder from time to time
may reasonably request; (g) provide to any Stockholder requesting to include
Registrable Common in such registration statement and any managing underwriter
participating in any distribution thereof, and to any attorney, accountant or
other agent retained by such Stockholder or managing underwriter, reasonable
access to appropriate officers and directors of Apple to ask questions and to
obtain information reasonably requested by any such Stockholder, managing
underwriter, attorney, accountant or other agent in connection with such
registration statement or any amendment thereto; PROVIDED, HOWEVER, that (i) in
connection with any such access or request, any such requesting persons shall
cooperate to the extent reasonably practicable to minimize any disruption to the
operation by Apple of its business and (ii) any records, information or
documents shall be kept confidential by such requesting persons, unless (A) such
records, information or documents are in the public domain or otherwise publicly
available or (B) disclosure of such records, information or documents is
required by court or administrative order or by applicable law (including,
without limitation, the Securities Act); (h) notify each Stockholder and the
managing underwriters participating in the distribution pursuant to such
registration statement promptly (i) when Apple is informed that such
registration statement or any post-effective amendment to such registration
statement becomes effective, (ii) of any request by the Commission for an
amendment or any supplement to such registration statement or any related
prospectus, (iii) of the issuance by the Commission of any stop order suspending
the effectiveness of such registration statement or of any order preventing or
suspending the use of any related prospectus or the initiation or threat of any
proceeding for that purpose, (iv) of the suspension of the qualification of any
shares of Registrable Common included in such registration statement for sale in
any jurisdiction or the initiation or threat of a proceeding for that purpose,
(v) of any determination by Apple that any event has occurred which makes untrue
any statement of a material fact made in such registration statement or any
related prospectus or which requires the making of a change in such registration
statement or any related prospectus in order that the same will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading and
(vi) of the completion of the distribution contemplated by such registration
statement if it relates to an offering by Apple; (i) in the event of the
issuance of any stop order suspending the effectiveness of such registration
statement or of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any shares of Registrable Common
included in such registration statement for sale in any jurisdiction, use its
best efforts to obtain its withdrawal; (j) otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, but not
later than fifteen months after the effective date of such registration
statement, an earnings statement covering the period of at least twelve months
beginning with the first full fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; (k) use reasonable diligence to cause all
shares of Registrable
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Common included in such registration statement to be listed on any securities
exchange (including, for this purpose, the Nasdaq National Market) on which the
Common Stock is then listed at the initiation of Apple; (l) use reasonable
diligence to obtain an opinion from legal counsel (which may include the General
Counsel of Apple) in customary form and covering such matters of the type
customarily covered by opinions as the underwriters, if any, may reasonably
request; (m) provide a transfer agent and registrar for all such Registrable
Common not later than the effective date of such registration statement; (n)
enter into such customary agreements (including an underwriting agreement in
customary form) as the underwriters, if any, may reasonably request in order to
expedite or facilitate the disposition of such shares of Registrable Common; and
(o) use reasonable diligence to obtain a "comfort letter" from Apple's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the underwriters, if any, may
reasonably request. As used in this SECTION 4 and elsewhere herein, the term
"underwriters" does not include any Stockholder.
5. UNDERWRITING AGREEMENT. In connection with each registration pursuant to
SECTIONS 2 AND 3 covering an underwritten registered public offering, Apple and
each participating Stockholder agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of Apple's size and investment stature, including
provisions for indemnification by Apple and each Selling Stockholder as more
fully described in SECTION 12 hereof.
6. AVAILABILITY OF RULE 144. Notwithstanding anything contained herein to the
contrary, (including SECTIONS 2 AND 3 hereof), Apple shall not be obligated to
register shares of Registrable Common held by any Stockholder when the resale
provisions of Rule 144(k) are available to such Stockholder or such Stockholder
is otherwise entitled to sell the shares of Registrable Common held by him or
her in a brokerage transaction without registration under the Securities Act and
without limitation as to volume or manner of sale or both.
7. RULE 144 REPORTING. With a view to making available the benefits of certain
rules and regulations of the Commission which may permit the sale of the shares
of Registrable Common held by the Stockholders to the public without
registration, Apple agrees to:
(a) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after 90 days
following the effective date of the registration statement;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of Apple under the Securities Act and
the Exchange Act at any time that it is subject to such reporting requirements;
and
(c) so long as a Stockholder owns any shares of Registrable Common,
furnish to the Stockholder forthwith upon request a written statement by Apple
as to its compliance with the
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reporting requirements of Rule 144, the Securities Act and the Exchange Act (at
any time that it is subject to such reporting requirements), a copy of the most
recent annual or quarterly report of Apple, and such other reports and documents
filed in accordance with such reporting requirements as a Stockholder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Stockholder to sell any such securities without
registration; and
(d) if required by the transfer agent and registrar for the Common Stock,
use reasonable diligence to obtain an opinion from legal counsel (which may
include the General Counsel of Apple) addressed to such transfer agent and
registrar, with respect to any sale of shares of Registerable Common pursuant to
Rule 144 (or, at the option of Apple, pay the reasonable fees and expenses of
legal counsel retained by a Stockholder to provide such an opinion).
8. MARKET STANDOFF.
(a) In consideration of the granting to Stockholders of the registration
rights pursuant to this Agreement, each Stockholder agrees that, for so long as
such Stockholder holds shares of Registrable Common, except as permitted by
SECTIONS 2 AND 3 hereof, such Stockholder will not sell, transfer or otherwise
dispose of, including without limitation through put or short sale arrangements,
shares of Common Stock in the ten days prior to the effectiveness of any
registration (other than relating to an Exempt Offering) of Common Stock for
sale to the public and for up to 90 days following the effectiveness of such
registration.
(b) Except for Exempt Offerings or in connection with the acquisition by
Apple of another company or business, Apple shall not offer to sell or sell any
shares of capital stock of Apple during the 90-day period immediately following
the commencement of an underwritten public offering of shares of Registrable
Common pursuant to a Demand Registration.
9. REGISTRATION EXPENSES. All expenses incurred in connection with any
registration, qualification and compliance under this Agreement (including,
without limitation, all registration, filing, qualification, legal, printing and
accounting fees, and underwriting commissions and discounts applicable to shares
of Registrable Common included in the registrations under this Agreement) shall
be borne by Apple. Subject to the foregoing, all expenses incident to Apple's
performance of or compliance with this Agreement, including, without limitation,
all filing fees, fees and expenses of compliance with securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel in
connection with Blue Sky qualifications of the Registrable Common), printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of Apple's officers and employees
performing legal or accounting duties), the fees and expenses applicable to
shares of Registrable Common included in connection with the listing of the
securities to be registered on each securities exchange (including, for this
purpose, the Nasdaq National Market) on which similar securities issued by Apple
are then listed at the initiation of Apple, registrar and transfer agents' fees
and fees and disbursements of counsel for Apple and its independent certified
public accountants, securities act liability insurance of Apple and its officers
and directors (if Apple elects to obtain
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such insurance), the fees and expenses of any special experts retained by Apple
in connection with such registration and fees and expenses of other persons
retained by Apple and incurred in connection with each registration hereunder
(but not including, without limitation, any fees and expenses of counsel and any
other special experts retained by the holders of Registrable Common in
connection with a registration required hereunder, and transfer taxes, if any),
will be borne by Apple.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable Common
may participate in any underwritten registration hereunder unless such holder
(a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, custody agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
11. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION RIGHTS.
The registration rights provided to the holders of Registrable Common under
SECTIONS 2 AND 3 hereof may not be transferred to any other person or entity,
except to any person who the Stockholder may transfer the Warrant pursuant to
the terms thereof or pursuant to the laws of descent and distribution; PROVIDED
that such transferees are bound by and subject to the terms and conditions
contained herein. Nothing herein shall limit the ability of Apple to grant to
any person or entity any registration or similar rights in the future with
respect to Common Stock or other securities of Apple (whether pursuant to the
foregoing provision or otherwise).
12. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. To the extent permitted by law,
Apple agrees to indemnify and hold harmless each Stockholder who sells shares of
Registrable Common in a registered offering pursuant to either SECTION 2 OR
SECTION 3 hereof (a "Selling Stockholder"), each person, if any, who controls
such Stockholder within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act and the officers, employees or members of the
Stockholder, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable legal expenses) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Common or
in any amendment or supplement thereto or in any related preliminary prospectus,
or arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon information
furnished in writing to Apple by such Selling Stockholder or on such Selling
Stockholder's behalf expressly for use therein. In connection with an
underwritten offering of shares of Registrable Common, Apple will indemnify any
underwriters of the Registrable Common, their partners, officers and directors
and each person who controls such underwriters (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act) on
substantially the same basis as that of the indemnification of the Selling
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Stockholders provided in this SECTION 12(A). Notwithstanding the foregoing,
Apple's indemnification obligations with respect to any preliminary prospectus
shall not inure to the benefit of any Selling Stockholder or underwriter with
respect to any loss, claim, damage, liability (or actions in respect thereof) or
expense arising out of or based on any untrue statement or alleged untrue
statement or omission or alleged omission to state a material fact in such
preliminary prospectus, in any case where (i) a copy of the prospectus used to
confirm sales of shares of Registrable Common was not sent or given to the
person asserting such loss, claim, damage or liability at or prior to the
written confirmation of the sale to such person and (ii) such untrue statement
or alleged untrue statement or omission or alleged omission was corrected in
such prospectus.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by a Selling Stockholder of notice of any claim or the commencement of any
action or proceeding brought or asserted against such Selling Stockholder in
respect of which indemnity may be sought from Apple, such Selling Stockholder
shall notify Apple in writing of the claim or the commencement of that action or
proceeding; PROVIDED, HOWEVER, that the failure to so notify Apple shall not
relieve Apple from any liability that it may have to the Selling Stockholder
otherwise than pursuant to the indemnification provisions of this Agreement. If
any such claim or action or proceeding shall be brought against a Selling
Stockholder and such Selling Stockholder shall have duly notified Apple thereof,
Apple shall have the right to assume the defense thereof, including the
employment of counsel. Such Selling Stockholder shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Selling Stockholder unless (i) Apple has agreed to pay such fees and expenses or
(ii) the named parties to any such action or proceeding include both such
Selling Stockholder and Apple, and such Selling Stockholder shall have been
advised by counsel that there may be one or more legal defenses available to
such Selling Stockholder which are different from or additional to those
available to Apple, in which case, if such Selling Stockholder notifies Apple in
writing that it elects to employ separate counsel at the expense of Apple, Apple
shall not have the right to assume the defense of such action or proceeding on
behalf of such Selling Stockholder; it being understood, however, that Apple
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Selling Stockholders. Apple shall
not be liable for any settlement of any such action or proceeding effected
without Apple's written consent.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In connection
with any registration in which a Selling Stockholder is participating, such
Selling Stockholder will furnish to Apple in writing such information and
affidavits as Apple reasonably requests for use in connection with any related
registration statement or prospectus. To the extent permitted by law, each
Selling Stockholder agrees to indemnify and hold harmless Apple, its directors
and officers who sign the registration statement relating to shares of
Registrable Common offered by such Selling Stockholder and each person, if any,
who controls Apple within the meaning of
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either Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from Apple to such Selling Stockholder,
but only with respect to information concerning such Selling Stockholder
furnished in writing by such Selling Stockholder or on such Selling
Stockholder's behalf expressly for use in any registration statement or
prospectus relating to shares of Registrable Common offered by such Selling
Stockholder, or any amendment or supplement thereto, or any related preliminary
prospectus. In case any action or proceeding shall be brought against Apple or
its directors or officers, or any such controlling person, in respect of which
indemnity may be sought against such Selling Stockholder, such Selling
Stockholder shall have the rights and duties given to Apple, and Apple or its
directors or officers or such controlling persons shall have the rights and
duties given to such Selling Stockholder, by the preceding paragraph. Each
Selling Stockholder also agrees to indemnify and hold harmless any underwriters
of the Registrable Common, their partners, officers and directors and each
person who controls such underwriters (within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act) on substantially the
same basis as that of the indemnification of Apple provided in this SECTION
12(C). Notwithstanding anything to the contrary herein, in no event shall the
amount paid or payable by any Selling Stockholder under this SECTION 12(C)
exceed the amount of proceeds received by such Selling Stockholder from the
offering of the Registrable Common.
(d) CONTRIBUTION. If the indemnification provided for in this
SECTION 12 is unavailable to any indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and the
indemnified parties in connection with the actions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnified party or indemnified parties
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. Apple and the Selling
Stockholders agree that it would not be just and equitable if contribution
pursuant to this SECTION 12(D) were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in this SECTION 12(D). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. If indemnification is available under this SECTION
12, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in SECTIONS 12(A) and (C) without regard to the relative fault
of said indemnifying party or indemnified party or any other equitable
consideration provided for in this SECTION 12(D)
13. MISCELLANEOUS.
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(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless Apple has obtained the written consent of holders of at least 51% of the
shares of Registrable Common then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopy, or registered or
certified mail (return receipt requested), postage prepaid, or courier to the
parties at the following addresses (or at such other address for any party as
shall be specified by like notice), PROVIDED that notices of a change of address
shall be effective only upon receipt thereof. Notices sent by mail shall be
effective when answered back, notices sent by telecopier shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
delivery shall be effective on the next business day after timely delivery by
the courier. Notices shall be sent to the following addresses:
(i) if to a Stockholder, at the most current address given by such
Stockholder to Apple in a writing making specific reference to this
Agreement;
(ii) if to Apple, at the following address:
Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Attn: H. Steven Walton
Telecopy: (713) 964-6877
with copies to: Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Attn: Richard S. Roth, Esq.
Telecopy: (713) 752-4221
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the heirs, executors, administrators, successors and assigns
of each of the parties.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(g) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all the rights and privileges of the
Stockholders shall be enforceable to the fullest extent permitted by law.
(h) ENTIRE AGREEMENT; TERMINATION. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Agreement, except the provisions of SECTION 12 (which shall
survive until the expiration of the applicable statutes of limitations) and this
SECTION 13, shall terminate and be of no further force or effect on November 14,
2001.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
APPLE:
APPLE ORTHODONTIX, INC.
By: /s/ ROBERT J. SYVERSON
Robert J. Syverson
President
STOCKHOLDERS:
TRICAP PARTNERS, L.L.C.
By:/S/ A. JOHN KREFT
A. John Kreft
Manager
EXHIBIT 10.11
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SERVICE AGREEMENT
DATED AS OF THE ____ DAY OF ________________, 1997
BY AND BETWEEN
APPLE ORTHODONTIX, INC.
-------------------
AND
-----------------------------------
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<PAGE>
TABLE OF CONTENTS
ARTICLE I.................................................................... 1
Definitions.......................................................... 1
Section 1.1 Definitions..................................... 1
ARTICLE II................................................................... 6
Relationship of the Parties.......................................... 6
ARTICLE III.................................................................. 6
Services to be Provided by Apple..................................... 6
Section 3.1 Overall Function................................ 6
Section 3.2 General Administrative Services. ............... 7
Section 3.3 Facilities...................................... 9
Section 3.4 Acquisition and Assistance...................... 10
Section 3.5 Inventory and Supplies.......................... 10
Section 3.6 Advertising and Public Relations................ 10
Section 3.7 Personnel....................................... 10
Section 3.8 Quality Assurance............................... 11
Section 3.9 Other Consulting and Advisory Services.......... 11
ARTICLE IV................................................................... 11
Obligations of the Orthodontic Entity and Orthodontist............... 11
Section 4.1 Employment of Orthodontist Employees............ 11
Section 4.2 Professional Services........................... 12
Section 4.3 Orthodontic Practice............................ 12
Section 4.4 Orthodontic Entity's and Orthodontist's
Internal Matters....................................... 13
Section 4.5 Compliance with Laws............................ 13
Section 4.6 Ancillary Services.............................. 14
Section 4.7 Premises and Personal Property.................. 14
Section 4.8 Orthodontic Entity Employee Benefit Plans....... 14
Section 4.9 Peer Review..................................... 15
Section 4.10 Additional Orthodontists........................ 15
Section 4.11 Current Orthodontic Practice.................... 15
ARTICLE V.................................................................... 16
Restrictive Covenants and Liquidated Damages......................... 16
Section 5.1 Restrictive Covenants by the Orthodontic Entity. 16
Section 5.2 Restrictive Covenants of Orthodontist........... 16
Section 5.3 Acknowledgement of Proprietary Interest......... 17
Section 5.4 Covenant Not-to-Divulge Confidential and
Proprietary Information................................ 18
Section 5.5 Return of Materials to Apple.................... 18
Section 5.6 [INTENTIONALLY DELETED]......................... 18
Section 5.7 Restrictive Covenants of Orthodontic
Entity Professional Employees.......................... 18
Section 5.8 Restrictive Covenants of Apple.................. 19
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Section 5.9 Remedies........................................ 19
ARTICLE VI................................................................... 19
Financial and Security Arrangements.................................. 19
Section 6.1 Service Fees.................................... 19
Section 6.2 Adjustments to Service Fees..................... 20
Section 6.3 Working Capital Loans........................... 20
Section 6.4 Security Agreement.............................. 21
ARTICLE VII.................................................................. 21
Records.............................................................. 21
Section 7.1 Records Owned by Apple.......................... 21
Section 7.2 Access to Records............................... 21
ARTICLE VIII................................................................. 22
Insurance and Indemnity.............................................. 22
Section 8.1 Insurance to be Maintained by the Orthodontic
Entity and Orthodontist................................ 22
Section 8.2 Insurance to be Maintained by Apple............. 22
Section 8.3 Continuing Liability Insurance Coverage......... 22
Section 8.4 Additional Insureds............................. 22
Section 8.5 Indemnification................................. 23
ARTICLE IX................................................................... 23
Term and Termination................................................. 23
Section 9.1 Term of Agreement............................... 23
Section 9.2 Extended Term................................... 23
Section 9.3 Termination by the Orthodontic Entity and
Orthodontist........................................... 23
Section 9.4 Termination by Apple............................ 24
Section 9.5 Termination by Orthodontist..................... 25
Section 9.6 Effective Date of Termination................... 25
Section 9.7 Purchase of Assets.............................. 25
Section 9.8 Terms of Purchase............................... 26
Section 9.9 Exception to Purchase........................... 26
Section 9.10 Effect Upon Termination......................... 26
ARTICLE X.................................................................... 27
General Provisions................................................... 27
Section 10.1 Assignment...................................... 27
Section 10.2 Amendments...................................... 27
Section 10.3 Waiver of Provisions............................ 27
Section 10.4 Additional Documents............................ 28
Section 10.5 Attorneys' Fees................................. 28
Section 10.6 Contract Modifications for Prospective
Legal Events........................................... 28
Section 10.7 Parties In Interest; No Third-Party
Beneficiaries.......................................... 28
Section 10.8 Entire Agreement................................ 28
Section 10.9 Severability.................................... 28
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Section 10.10 Governing Law................................... 29
Section 10.11 No Waiver; Remedies Cumulative.................. 29
Section 10.12 Language Construction........................... 29
Section 10.13 Communications.................................. 29
Section 10.14 Captions........................................ 29
Section 10.15 Gender and Number............................... 29
Section 10.16 Reference to Agreement.......................... 29
Section 10.17 Notice.......................................... 30
Section 10.18 Choice of Forum................................. 30
Section 10.19 Service of Process.............................. 31
Section 10.20 Counterparts.................................... 31
Section 10.21 Defined Terms................................... 31
EXHIBITS
Exhibit 1.1(u) Orthodontic Entity Professional Employment Agreements
Exhibit 7.3. Form of Security Agreement
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SERVICE AGREEMENT
This Service Agreement (this "Agreement"), dated as of
__________________, 1997, is by and between Apple Orthodontix Inc., a Delaware
corporation ("AOI" or "Apple"), ____________, D.D.S. ("Orthodontist") and
_________________________________, a ____________ professional corporation (the
"Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, Orthodontic Entity and Orthodontist provide comprehensive
professional orthodontic care to the general public in the ____________ area;
and
WHEREAS, Apple is in the business of owning certain assets of
orthodontic clinics and providing consulting, administrative, and other support
services to and furnishing orthodontic practices with the necessary facilities,
equipment, non-orthodontist personnel, supplies and support staff services; and
WHEREAS, the Orthodontic Entity and Orthodontist desire to obtain the
services of Apple in performing such functions so as to permit the Orthodontic
Entity to devote its efforts on a concentrated and continuous basis to the
rendering of orthodontic services to its patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following definitions shall apply:
(a) "Acquisition" shall mean the acquisition described in the
Acquisition Agreement.
(b) "Acquisition Agreement" shall mean the Contribution Agreement
dated February 11, 1997, among AOI, _____________________, a
_____________ professional corporation, and Orthodontist.
(c) "Acquisition Closing Date" shall mean the date the
Acquisition is effective pursuant to the terms of the Acquisition
Agreement.
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(d) "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, such
person.
(e) "AOI Group" shall mean Apple, Affiliates of Apple and all
professional associations or corporations or other entities for which
Apple or its Affiliates provides management services.
(f) "AOI Plans" shall have the meaning set forth in SECTION
4.8(b).
(g) "Apple Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(i) Any corporate overhead charges of Apple and other
items incurred by Apple that are not incurred specifically for
the purpose of providing services to the Orthodontic Entity or
Orthodontist or are not directly attributable to the Orthodontic
Entity or Orthodontist as reasonably determined by Apple,
including without limitation, salaries and benefits of executive
officers of Apple, except as otherwise provided for in the
definition of Orthodontic Entity and Orthodontist Expenses;
(ii) Any legal and accounting expenses incurred by Apple
in connection with the Acquisition;
(iii) All taxes of Apple, including but not limited to
state and federal income taxes and franchise taxes, but excluding
state and federal employee taxes related to Orthodontist or
employees who provide services for the Orthodontic Entity or
Orthodontist, property taxes on assets used by the Orthodontic
Entity or Orthodontist and other taxes specifically included in
Excluded Orthodontic Entity and Orthodontist Expenses; and
(iv) Any other expenses specifically included in "Apple
Expenses" in this Agreement.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Confidential and Proprietary Information" shall have the
meaning set forth in SECTION 5.3.
(j) "Disabled" or "Disability" shall mean, with respect to
Orthodontist, (a) having a mental or physical incapacity sufficiently
serious that Apple may reasonably anticipate that Orthodontist will be
unable to resume the normal performance of Orthodontist's duties within
the two years succeeding the commencement of Orthodontist's incapacity,
or (b) Orthodontist's receipt of benefits for a period of six
consecutive months by reason of disability under a salary continuation,
or other disability plan, maintained for Orthodontist's benefit. In the
event of such mental or physical incapacity, each Orthodontist agrees
upon Apple's request to submit Orthodontist's
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medical and other related records to be examined by an independent
third-party doctor selected by Apple whose decision shall govern for
purposes of determining the existence of a disability.
(k) "ERISA" shall have the meaning set forth in SECTION 4.8(a).
(l) "Excluded Orthodontic Entity and Orthodontist Expenses" shall
mean, (i) any salaries or other distributions made to Orthodontist or
any shareholder of the Orthodontic Entity, whether for professional fee
income or otherwise, and any expenses related thereto, including payroll
and other taxes associated therewith, and any expenses or costs
associated with benefits provided to Orthodontist or any shareholder of
the Orthodontic Entity, including pension benefits and life and health
insurance, (ii) any federal, state or other income taxes applicable to
the Orthodontic Entity or Orthodontist, (iii) legal, accounting and
other costs incurred by the Orthodontic Entity or Orthodontist in
connection with the negotiation, preparation of or closing of the
transactions contemplated by the Acquisition Agreement, this Agreement
or any other document executed in connection herewith or therewith and
(vi) any other expenses specifically included in "Excluded Orthodontic
Entity and Orthodontist Expenses" in this Agreement.
(m) "Fair Market Value" shall mean as to any assets, the fair
market value of such assets as determined by Apple and the Orthodontic
Entity. In the event the parties are unable to agree upon the fair
market value, then Apple and the Orthodontic Entity shall each select an
independent appraiser who will then select a third independent appraiser
who will determine the fair market value of the asset in question.
(n) "GAAP" shall mean generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity or other practices and procedures as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination.
(o) "Initial Working Capital Line" shall have the meaning set
forth in SECTION 6.3.
(p) "Loan Termination Date" shall have the meaning set forth in
SECTION 6.3.
(q) "Orthodontic Entity" shall include the Orthodontic Entity as
defined in the first paragraph of this Agreement and all satellite
locations and related businesses of such Orthodontic Entity.
(r) "Orthodontic Entity and Orthodontist Expenses" shall mean all
operating and non-operating expenses of Apple with respect to the
Orthodontic Entity for services requested by the Orthodontic Entity or
Orthodontist and all operating and non-operating expenses of the
Orthodontic Entity and Orthodontist incurred by the Orthodontic Entity
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or Orthodontist in the operation of the Orthodontic Entity or the
practice of orthodontics by Orthodontist, including, without limitation:
(i) Salaries, benefits and other direct costs of all
employees of Apple who perform services for the benefit of the
Orthodontic Entity or Orthodontist and all salaries and benefits
of Orthodontic Entity Professional Employees and Orthodontic
Entity Employees, including, without limitation, federal and
state employee taxes and costs related to workers' compensation;
provided, however, only the portion of salaries, benefits and
other direct costs related to such employee, without mark-up,
that is allocable to work performed at or for the benefit of the
Orthodontic Entity or Orthodontist and approved by the
Orthodontic Entity or Orthodontist will be included in
Orthodontic Entity and Orthodontist Expenses;
(ii) Direct costs of all employees or consultants of Apple
and its Affiliates to provide services at or in connection with
the Orthodontic Entity or for the Orthodontist at or in
connection with the Orthodontic Entity for improved performance;
provided, however, (x) only the portion of salaries, benefits and
other direct costs related to such employee or consultant,
without mark-up, that is allocable to work performed at or for
the benefit of the Orthodontic Entity or Orthodontist and
approved by the Orthodontic Entity or Orthodontist will be
included in Orthodontic Entity and Orthodontist Expenses, and (y)
the salaries, other employee benefits or consulting fees paid by
Apple and its Affiliates to the consultants who will provide
three days per annum of marketing consulting services and one day
per annum of health and safety consulting services shall not be
included in Orthodontic Entity and Orthodontist Expenses but
shall be Apple Expenses;
(iii) Personal property and intangible taxes assessed
against assets of Apple or any of its Affiliates which are leased
or utilized for the benefit of the Orthodontic Entity or
Orthodontist under this Agreement, commencing on the date of this
Agreement; provided, however, only the portion of the taxes
related to such assets, without mark-up, that is allocable to the
use of such assets at or for the benefit of the Orthodontic
Entity or Orthodontist and approved by the Orthodontic Entity or
Orthodontist will be included in Orthodontic Entity and
Orthodontist Expenses;
(iv) All costs, fees, expenses and other disbursements
incurred in connection with the Premises (as defined in SECTION
3.3) and the Personal Property (as defined in SECTION 3.3),
including, without limitation, all costs of repairs, maintenance
and improvements, utility expenses (i.e., telephone, electric,
gas and water), janitorial services, refuse disposal, real or
personal property lease cost payments and expenses, taxes and
casualty, liability and other insurance,
(v) Any provider tax or license fee assessed against the
Orthodontic Entity or Orthodontist by the State of ____________
and any sales and use taxes assessed against Apple and its
Affiliates, the Orthodontic Entity or Orthodontist
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related to Orthodontic Entity operations, the practice of
orthodontics by Orthodontist or assessed against Apple related to
services provided hereunder;
(vi) Expenses related to professional meetings, seminars
and dues and professional licensing fees of Orthodontist or any
Orthodontic Entity Professional Employee or related to the
business of the Orthodontic Entity;
(vii) All expenses specifically included in "Orthodontic
Entity and Orthodontist Expenses" in this Agreement; and
(viii) Depreciation and amortization of all assets
purchased subsequent to the Acquisition for use by the
Orthodontic Entity and Orthodontist.
Provided, however, that, notwithstanding anything contained herein,
Apple Expenses and Excluded Orthodontic Entity and Orthodontist Expenses
shall not be included in Orthodontic Entity and Orthodontist Expenses.
(s) "Orthodontic Entity Employees" shall mean (i) those
individuals who are employed by or otherwise under contract or
associated with the Orthodontic Entity or Orthodontist that generate a
professional charge, and (ii) those individuals required by law to be
employed by the Orthodontic Entity or Orthodontist.
(t) "Orthodontic Entity Professional Employees" shall mean those
individuals who are orthodontists, dental hygienist or licensed
professionals employed by the Orthodontic Entity or Orthodontist or
otherwise under contract or associated with the Orthodontic Entity or
Orthodontist to provide professional orthodontic services to patients of
the Orthodontic Entity or Orthodontist, provided, however, that
Orthodontist shall be excluded from the definition of Orthodontic Entity
Professional Employees.
(u) "Orthodontic Entity Professional Employment Agreements" shall
mean the employment agreements entered into of even date herewith
between the Orthodontic Entity or Orthodontist and each Orthodontic
Entity Professional Employee (not including Orthodontic Entity
Employees) in substantially the form attached to the Acquisition
Agreement as EXHIBIT 1.1(U).
(v) "Orthodontic Entity Related Liabilities" shall have the
meaning set forth in SECTION 9.7(b).
(w) "Personal Property" shall have the meaning set forth in
SECTION 3.3(b).
(x) "Practice Plans" shall have the meaning set forth in SECTION
4.8(a).
(y) "Premises" shall have the meaning set forth in SECTION
3.3(a).
(z) "Purchase Assets" shall have the meaning set forth in SECTION
9.7(a).
(aa) "Purchase Closing" shall have the meaning set forth in
SECTION 9.8.
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(ab) "Security Agreement" shall have the meaning set forth in
SECTION 6.4.
(ac) "Tax Returns" shall include all federal, state, local,
franchise, property and other tax returns.
(ad) "Termination Date" shall have the meaning set forth in
SECTION 9.6.
ARTICLE II
RELATIONSHIP OF THE PARTIES
The Orthodontic Entity, Orthodontist and Apple intend to act and perform
as independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, agency or employment relationship between the
parties. Apple, the Orthodontic Entity and Orthodontist agree that the
Orthodontic Entity and Orthodontist shall retain the authority to direct the
orthodontic, professional, and ethical aspects of their orthodontic practice.
Apple shall neither exercise control over nor interfere with the
orthodontist-patient relationships of the Orthodontic Entity and Orthodontist,
which shall be maintained strictly between the orthodontists of the Orthodontic
Entity and their patients. The parties hereby agree that neither the benefits to
the Orthodontic Entity and Orthodontist hereunder, nor the payment of services
fees to Apple, require, are payment for, or are in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Apple or any of its Affiliates to any of the Orthodontic
Entity's or Orthodontist's patients in any facility or laboratory controlled,
managed or operated by Apple.
ARTICLE III
SERVICES TO BE PROVIDED BY APPLE
SECTION 3.1 OVERALL FUNCTION. In accordance with the terms hereof, Apple
shall provide or arrange for the services set forth in this ARTICLE III, and the
costs, fees, expenses and other disbursements incurred by Apple in connection
therewith shall be included in Orthodontic Entity and Orthodontist Expenses,
except to the extent such costs, fees or expenses are Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses. Apple is authorized to perform its
services hereunder as is necessary or appropriate for the efficient operation of
the Orthodontic Entity. The Orthodontic Entity and Orthodontist will not act in
a manner which would prevent Apple from performing its duties hereunder and will
provide such information and assistance to Apple as is reasonably required by
Apple to perform its services hereunder. Apple shall, and shall use its best
efforts to cause its employees, to comply with all federal, state and local
laws, rules and regulations in its provision of services hereunder.
SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
(a) The Orthodontic Entity hereby appoints Apple to serve as its
exclusive manager and administrator of non-orthodontist services
relating to the operation of the
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Orthodontic Entity and the practice of orthodontics by Orthodontist,
subject to matters reserved for the Orthodontic Entity or Orthodontist
as herein provided, and Apple shall have all necessary authority to
perform such services in accordance with the terms of this Agreement.
The Orthodontic Entity agrees that the purpose and intent of this
Agreement is to relieve the Orthodontic Entity and Orthodontist to the
maximum extent possible of the administrative, accounting,
non-orthodontist personnel and business aspects of its practice. Apple
agrees that the Orthodontic Entity, Orthodontist, Orthodontic Entity
Employees and the Orthodontic Entity Professional Employees, and only
the Orthodontic Entity, Orthodontist, Orthodontic Entity Employees and
the Orthodontic Entity Professional Employees, will perform the
orthodontic functions of their respective practices; provided, however,
that to the extent that an Apple employee assists Orthodontist, any
Orthodontic Entity Professional Employee or the Orthodontic Entity in
performing orthodontic functions, such Apple employee shall be subject
to the professional direction and supervision of Orthodontist,
Orthodontic Entity Professional Employee or Orthodontic Entity and in
the performance of such orthodontic functions, shall not be subject to
any direction or control by, or liability to, Apple, except as may be
specifically authorized by Apple. Apple will have no authority, directly
or indirectly, to perform or supervise, and will not perform or
supervise, any orthodontic function. Apple may, however, advise the
Orthodontic Entity and Orthodontist as to the relationship between its
performance of orthodontic functions and the overall administrative and
business functions of the practice to the extent permitted by applicable
law. Apple shall cause to be paid all federal and state employment taxes
and related tax reports for its employees.
(b) Apple shall, on behalf of Orthodontist and the Orthodontic
Entity, provide all services related to the billing of patients,
insurance companies and other third-party payors and collect the
professional fees for orthodontic services rendered by Orthodontist and
the Orthodontic Entity, for services performed outside the Orthodontic
Entity for its patients, and for all other professional and Orthodontic
Entity services and products and for services rendered by Orthodontist
in accordance with all applicable legal requirements and the policies
and procedures of third-party payors. To the extent necessary to comply
with applicable laws or the terms of any third-party payor arrangements,
Apple shall bill in the name of and on behalf of the Orthodontic Entity
and Orthodontist. The Orthodontic Entity hereby appoints Apple for the
term of this Agreement to be its true and lawful attorney-in-fact, for
the following purposes: (i) to bill patients, insurance companies and
other third-party payors in the Orthodontic Entity's and Orthodontist's
name and on their behalf pursuant to the fee schedule prepared by the
Orthodontic Entity and Orthodontist; (ii) to collect accounts receivable
resulting from such billing in the Orthodontic Entity's and
Orthodontist's name and on their behalf; (iii) to receive payments from
insurance companies, prepayments received from health care plans and all
other third party payors; (iv) to take possession of and endorse in the
name of the Orthodontic Entity (and/or in the name of an individual
orthodontist, such payment intended for purpose of payment of a
orthodontist's bill related to the Orthodontic Entity or Orthodontist)
any notes, checks, money orders, insurance payments and other
instruments received in payment of accounts receivable; and (v) in each
case, after approval by the Orthodontist, to initiate the institution of
legal proceedings in the name of the Orthodontic Entity or Orthodontist
or Orthodontic Entity Professional Employee
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to collect any accounts and monies owed to the Orthodontic Entity or
Orthodontist or Orthodontic Entity Professional Employee, to enforce the
rights of the Orthodontic Entity or Orthodontist or Orthodontic Entity
Professional Employee as creditors under any contract or in connection
with the rendering of any service, and to contest adjustments and
denials by third-party payors. The Orthodontic Entity and Orthodontist
shall, and shall cause each Orthodontic Entity Professional Employee to,
execute a Power of Attorney in form and substance acceptable to the
parties hereto in connection with the rights and powers granted to Apple
pursuant to this SECTION 3.2(b). All monies shall be accounted for by
Apple as being distinctly attributable to the Orthodontic Entity. The
Orthodontic Entity may perform the functions or exercise the rights set
forth in this SECTION 3.2(b) only with the consent of Apple. The
Orthodontic Entity and Orthodontist will assist Apple with the functions
set forth herein at the request of Apple.
(c) Apple shall supply to the Orthodontic Entity the ordinary,
necessary or appropriate services for the efficient operation of the
Orthodontic Entity, including without limitation, necessary clerical,
accounting, payroll, legal, bookkeeping and computer services,
information management, information for the preparation of Tax Returns,
printing, postage and duplication services and orthodontic transcribing
services. Apple shall prepare monthly and annual unaudited financial
statements for the Orthodontic Entity containing a balance sheet and
income statement, which shall be delivered to the Orthodontic Entity
within 45 days after the end of each calendar month and 120 days after
the end of each calendar year. Any audits to be conducted with respect
to such financial statements shall be an Excluded Orthodontic Entity and
Orthodontist Expense.
(d) Apple shall maintain all files and records of the Orthodontic
Entity and Orthodontist relating to the operation of the Orthodontic
Entity or the practice of orthodontics by Orthodontist, including, but
not limited to, accounting, billing, collection and customary financial
records and patient files. The management of all files and records shall
comply with all applicable federal, state and local statutes and
regulations, and all files and records shall be located so that they are
readily accessible for patient care, consistent with ordinary records
management practices. The Orthodontic Entity and Orthodontist shall
supervise the preparation of, and direct the contents of, patient
orthodontic records, all of which shall remain confidential. All
original patient records shall be and remain the property of the
Orthodontic Entity or Orthodontist, as applicable; provided that, to the
extent permitted by applicable law, Apple shall have the right to copy
such patient records and to retain and use such copies.
SECTION 3.3 FACILITIES.
(a) Apple shall make available to the Orthodontic Entity and
Orthodontist the premises that are described in SCHEDULE 3.3 attached
hereto (which describes each location where the Orthodontist provided
orthodontic services to patients on January 31, 1997 and each location
proposed to be opened to provide such services on such date) and such
other real property acquired (with the consent of the Orthodontic Entity
and Orthodontist) and improvements made by Apple for the use of the
Orthodontic Entity and Orthodontist hereunder (collectively, the
"Premises"); provided, that in the event that
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Apple's rights to use any such premises shall terminate, Apple shall use
reasonably commercial efforts to provide other suitable premises to be
used by the Orthodontic Entity and Orthodontist, which premises shall be
approved by the Orthodontic Entity and Orthodontist, such approval not
to be unreasonably withheld. Apple shall obtain for the Orthodontic
Entity and Orthodontist all utilities reasonably required in connection
with the use of the Premises and shall provide for the proper
cleanliness of the Premises, including normal janitorial services and
refuse disposal.
(b) Apple shall provide the Orthodontic Entity and Orthodontist
with the use of the equipment, furniture, fixtures, furnishings and
other tangible personal property acquired by Apple in the Acquisition,
together with replacements thereof and such other equipment, furniture,
fixtures, furnishings and tangible personal property acquired (with the
consent of the Orthodontic Entity or Orthodontist) by Apple for the use
of Orthodontic Entity and Orthodontist pursuant to the terms hereof
(collectively, the "Personal Property").
(c) Apple shall provide, finance, or cause to be provided or
financed, orthodontic related equipment as required by the Orthodontic
Entity. Apple may consult the Orthodontic Entity on the relationship
between its orthodontic equipment decisions and the overall
administrative and financial operations of the practice. All orthodontic
and non-orthodontic equipment acquired for the use of the Orthodontic
Entity shall be owned by Apple but shall be utilized solely by the
Orthodontic Entity so long as the Orthodontic Entity is repaying its
portion of the cost thereof. Apple and Orthodontic Entity will share
equally in the cost to purchase any new or replacement orthodontic or
non-orthodontic equipment to be acquired after consummation of the
Acquisition (except with respect to the first $100,000 worth of such
equipment, which shall be purchased by Apple), provided that the
Orthodontic Entity and Apple mutually agree to acquire such equipment.
Apple may advance or cause to be financed the total purchase value of
any equipment acquired. The Orthodontic Entity may repay in full its
share of the cost or finance such amount due to Apple in equal payments
over a term of up to 60 months at a rate of prime plus 1%. The amount,
if any, due to Apple will be paid monthly by the Orthodontic Entity. Any
amounts paid to Apple by the Orthodontic Entity pursuant to this Section
3.3(c) are Excluded Orthodontic Entity and Orthodontist Expenses.
(d) In the event Apple and the Orthodontic Entity jointly
determine to open a satellite orthodontic office, (i) Apple will bear
60% of the capital costs, and the Orthodontic Entity will bear 40% of
the capital costs, of opening such satellite office, and (ii) Apple
shall make available loans accruing annual interest at the prime rate of
NationsBank of Texas, N.A. plus 1% to finance the Orthodontic Entity's
and Orthodontist's portion of such costs. No principal or interest
payments for any such loan shall be due until the first day of the
sixteenth month following the date of the loan (the "First Payment
Date"). The amount of interest that accrues until the date fifteen
months after the origination date of the loan shall be added to the
original principal amount of the loan to determine the principal amount
payable by the Orthodontic Entity. Sixty equal principal payments plus
accrued interest shall be payable beginning on the First Payment Date
and ending on the first day of the fifty-ninth month thereafter.
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SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made
by the Orthodontic Entity or Orthodontist to employ additional orthodontists or
acquire orthodontist groups or practices, Apple may assist the Orthodontic
Entity in the identification and selection of orthodontists or orthodontist
groups or practices that may be beneficial in the operation of the Orthodontic
Entity. In the event that a decision is made by the Orthodontic Entity or
Orthodontist to pursue the employment of selected orthodontists or the
acquisition of a particular orthodontist group or practice, Apple may provide
recruiting, consulting, negotiating and other services and may provide for
legal, accounting and other professional advisor services in connection with
such transaction.
SECTION 3.5 INVENTORY AND SUPPLIES. Apple shall order and purchase
inventory and supplies, and such other ordinary, necessary or appropriate
materials which are reasonably necessary in the operation of the Orthodontic
Entity and which are requested by Orthodontist to deliver quality orthodontic
services in a cost-effective manner. Such inventory, supplies and other
materials shall be included in Orthodontic Entity and Orthodontist Expense at
their purchase price less discounts or rebates, if any.
SECTION 3.6 ADVERTISING AND PUBLIC RELATIONS. In consultation with the
Orthodontic Entity and Orthodontist, Apple shall design and produce (where
requested) any appropriate local public relations or advertising program on
behalf of the Orthodontic Entity, with appropriate emphasis on public awareness
of the availability of services at the Orthodontic Entity. Any design and
production costs incurred by Apple related to local public relations or
advertising programs requested by the Orthodontic Entity or Orthodontist shall
be Apple Expenses. All other costs of local advertising programs on behalf of
the Orthodontic Entity will be included in Orthodontic Entity and Orthodontist
Expenses, including, but not limited to, out-of-pocket costs incurred by Apple.
All public relations and advertising programs shall be conducted in compliance
with applicable standards of orthodontic ethics, laws and regulations. Apple
shall make available interest-free loans (up to an amount equal to the lesser of
the Orthodontic Entity's costs of local advertising and 6% of the Transaction
Value (as defined in the Acquisition Agreement)) to finance the Orthodontic
Entity's costs of local advertising until the first anniversary of the date of
this Agreement. The principal amount of any such loans shall be repaid by the
Orthodontic Entity in twelve equal monthly installments beginning on the first
anniversary of the date of this Agreement.
SECTION 3.7 PERSONNEL. Apple shall provide non-orthodontist professional
support and administrative personnel, clerical, secretarial, bookkeeping and
collection personnel reasonably necessary for the conduct of the Orthodontic
Entity's operations. Apple will consult with the orthodontist to determine the
salaries and fringe benefits to be paid to all such personnel. Such personnel
shall be under the direction, supervision and control of Apple, with those
personnel performing patient care services subject to the professional
supervision of Orthodontist while such personnel are performing such patient
care services. If Orthodontist is dissatisfied with the services of any person,
Orthodontist shall consult with Apple. Apple shall in good faith determine
whether the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be reassigned or
terminated. All of Apple's obligations regarding staff shall be governed by the
overriding principle and goal of providing high quality orthodontic care.
Employee assignments shall be made to assure consistent and continued rendering
of high quality orthodontic support services and to ensure
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prompt availability and accessibility of individual orthodontic support
personnel to orthodontists in order to develop constant, familiar and routine
working relationships between individual orthodontists and individual members of
the orthodontic support personnel. Apple shall maintain established working
relationships wherever possible and Apple shall make every effort consistent
with sound business practices to honor the specific requests of Orthodontist
with regard to the assignment of its employees. Apple shall provide
administrative services such as scheduling, personnel policies and payroll
administration for Orthodontic Entity Employees. Apple and the Orthodontic
Entity shall use their best efforts to define who are their respective employees
for all administrative purposes.
SECTION 3.8 QUALITY ASSURANCE. Apple shall assist the Orthodontic Entity
in fulfilling its obligations to its patients to maintain a high quality of
orthodontic and professional services and any expenses incurred by Apple related
to such in connection therewith shall be included in Orthodontic Entity and
Orthodontist Expenses.
SECTION 3.9 OTHER CONSULTING AND ADVISORY SERVICES. Apple will provide
such consulting and other advisory services as requested by the Orthodontic
Entity or Orthodontist in all areas of the Orthodontic Entity's or
Orthodontist's business functions, including, without limitation, financial
planning, acquisition and expansion strategies, development of long-term
business objectives and other related matters. Subject to the provisions of
SECTION 1.1(r)(ii) hereof, the costs and expenses of third-party consultants
engaged by Apple to provide such services shall be Orthodontic Entity and
Orthodontist Expenses.
ARTICLE IV
OBLIGATIONS OF THE ORTHODONTIC ENTITY AND ORTHODONTIST
SECTION 4.1 EMPLOYMENT OF ORTHODONTIST EMPLOYEES. The Orthodontist shall
have complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of any orthodontist employed by the
Orthodontic Entity, although at the request of the Orthodontic Entity or
Orthodontist, Apple shall consult with the Orthodontic Entity and Orthodontist
with respect to such matters. Although Apple may provide payroll and other
related services to the Orthodontic Entity and Orthodontist, the Orthodontic
Entity and Orthodontist shall be solely responsible for the payment of their
respective Orthodontic Entity Professional Employees' and Orthodontic Entity
Employees' salaries and wages, payroll taxes and all other taxes and charges now
or hereafter applicable to them. Neither the Orthodontic Entity, Orthodontist,
their respective Orthodontic Entity Professional Employees nor their respective
Orthodontic Entity Employees shall have any claim under this Agreement or
otherwise against Apple for workers' compensation, unemployment compensation,
Social Security benefits or any other employee benefits, all of which shall be
the sole responsibility of the Orthodontic Entity and Orthodontist. The
Orthodontic Entity and Orthodontist shall only employ and contract with licensed
orthodontists and other persons meeting applicable credentialling guidelines
established by the Orthodontic Entity and Orthodontist and approved by Apple,
which approval will not be unreasonably withheld. The Orthodontic Entity and
Orthodontist shall cooperate in the obtaining and retaining of professional
liability insurance by ensuring that their respective Orthodontic Entity
Professional Employees and Orthodontic Entity Employees and
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other employees who have malpractice exposure or liability are insurable, and
participating in an on-going risk management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Orthodontic Entity and
Orthodontist shall provide professional services to patients in compliance at
all times with ethical standards, laws, rules and regulations applying to the
Orthodontic Entity, Orthodontist, the Orthodontic Entity Professional Employees
and the Orthodontic Entity Employees. The Orthodontic Entity and Orthodontist
shall ensure that Orthodontist, Orthodontic Entity Professional Employees and
Orthodontic Entity Employees have all required licenses, credentials, approvals
or other certifications to perform his or her duties and services. In the event
that any disciplinary actions or orthodontic malpractice actions are initiated
against Orthodontist, an Orthodontic Entity Professional Employee or an
Orthodontic Entity Employee, the Orthodontic Entity shall immediately inform
Apple of such action and the underlying facts and circumstances. The Orthodontic
Entity and Orthodontist shall carry out a program to monitor the quality of
orthodontic care practiced at the Orthodontic Entity. The Orthodontic Entity
shall employ such Orthodontic Entity Professional Employees as is necessary to
provide efficient orthodontic care to patients of the Orthodontic Entity.
Orthodontist and the Orthodontic Entity shall make all reports and inquiries to
any state data bank required by applicable law.
SECTION 4.3 ORTHODONTIC PRACTICE. The Orthodontic Entity and
Orthodontist shall use and occupy the Premises exclusively for the practice of
orthodontics and for providing other related services and products. Unless
otherwise approved in writing by the Orthodontic Entity and Apple, it is
expressly acknowledged by the Orthodontic Entity and Orthodontist that the
orthodontic practice or practices conducted at the Orthodontic Entity shall be
conducted solely by orthodontists associated with the Orthodontic Entity, and
that the Orthodontic Entity and Orthodontist shall not permit any other
orthodontist or dental practitioner to use or occupy the Orthodontic Entity. The
Orthodontic Entity and Orthodontist shall be solely and exclusively in control
of all aspects of the practice of orthodontics and the delivery of orthodontic
services by Orthodontist or at the Orthodontic Entity's facilities. The
rendition of all orthodontic professional services, including, but not limited
to, diagnosis, treatment, therapy, the prescription of medicine and drugs, and
the supervision and preparation of orthodontic reports shall be the sole
responsibility of the Orthodontic Entity and Orthodontist. Apple shall have no
authority whatsoever with respect to the establishment of fees or charges for
the rendition of such services; provided, however, that in the event the
Orthodontic Entity or the Orthodontist renders orthodontic services to a patient
in consideration for anything other than cash, Apple will determine the value of
such consideration for purposes of determining the amount of revenues received
by the Orthodontic Entity or Orthodontist. From time to time, the Orthodontic
Entity and Orthodontist in their discretion will adopt and implement fee
schedules for non-prepaid patients which shall be reasonable in relation to fees
generally being obtained in the same or similar market areas. Notwithstanding
any provision of this Agreement to the contrary, nothing herein shall be
construed as precluding Apple from permitting the use of or from entering into
agreements with other orthodontists or entities owned by other orthodontists
similar to this Agreement, with respect to the Premises, Personal Property and
tradenames, trademarks and other intangible assets of Apple utilized by the
Orthodontic Entity or Orthodontist pursuant to this Agreement; provided any such
other agreement shall not eliminate or diminish Apple's obligations hereunder or
interfere with the Orthodontic Entity's or Orthodontist's business.
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SECTION 4.4 ORTHODONTIC ENTITY'S AND ORTHODONTIST'S INTERNAL MATTERS.
The Orthodontic Entity and Orthodontist shall be responsible for matters
involving their respective corporate governance, employees and similar internal
matters, including, but not limited to, preparation and contents of such reports
to regulatory authorities governing the Orthodontic Entity and Orthodontist that
the Orthodontic Entity or Orthodontist are required by law to provide,
distribution of professional fee income among Orthodontist or the shareholders
of the Orthodontic Entity, disposition of the Orthodontic Entity's and
Orthodontist's property and stock and hiring and firing of their employees and
licensing. Except for the expenses attributable to the distribution of
professional fee income among Orthodontist or the shareholders of the
Orthodontic Entity which will be included in Excluded Orthodontic Entity and
Orthodontist Expenses, the costs incurred in connection with the foregoing
matters shall be Orthodontic Entity and Orthodontist Expenses. The legal,
accounting and other professional services fees incurred by Orthodontist or the
Orthodontic Entity in connection with the internal matters of the Orthodontic
Entity, the personal accounting of the Orthodontic Entity and Orthodontist and
similar internal and personal matters, including without limitation, the costs
associated with enforcing any contract with a Orthodontic Entity Professional
Employee (other than as set forth in SECTION 5.8), shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
SECTION 4.5 COMPLIANCE WITH LAWS. The Orthodontic Entity and
Orthodontist shall, and shall use their best efforts to cause Orthodontist and
Orthodontic Entity Professional Employees to, comply with all applicable
federal, state and local laws, rules, regulations and restrictions in the
conduct of the Orthodontic Entity's and Orthodontist's business. Without
limiting the generality of the foregoing, the Orthodontic Entity and
Orthodontist shall use their best efforts to forbid Orthodontist and each
Orthodontic Entity Professional Employee to:
(a) enter into any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting
agreement, to provide services, lease space, lease equipment or engage
in any other venture or activity with any orthodontist, hospital,
pharmacy, home health agency or other person or entity which is in a
position to make or influence referrals to, or otherwise generate
business for, the Orthodontic Entity or Orthodontist, if such
transaction is in violation of any applicable law, rule or regulation;
(b) knowingly and willfully make or cause to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(c) knowingly and willfully make or cause to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment; and
(d) fail to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment.
SECTION 4.6 ANCILLARY SERVICES. The Orthodontic Entity and Orthodontist
agree not to acquire, establish or operate any satellite location, orthodontic
office, health maintenance organization, preferred provider organization,
exclusive provider organization or similar entity
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or organization established or operated by the Orthodontic Entity or
Orthodontist after the date hereof without the prior written consent of Apple.
Orthodontist and the Orthodontic Entity shall not merge or consolidate with any
other entity or individual or liquidate or dissolve or wind-up Orthodontist's or
the Orthodontic Entity's affairs or enter into any partnerships, joint ventures
or sale-leaseback transactions or purchase or otherwise acquire (in one or a
series of transactions) any part of the property or assets of any other person
or entity without the prior written consent of Apple. Apple's consent shall be
required for the Orthodontist to provide orthodontic services at a location
other than the Orthodontic Entity or on behalf of an entity or person other than
the Orthodontic Entity.
SECTION 4.7 PREMISES AND PERSONAL PROPERTY. The Orthodontic Entity and
Orthodontist shall use the Premises and Personal Property for their intended use
to minimize the risk of damage, excessive wear and tear, and malfunction or
other breakdown of the Premises and Personal Property or any part thereof. The
Orthodontic Entity and Orthodontist shall promptly inform Apple in writing of
any and all material replacements, repairs or maintenance to any of the Premises
or Personal Property and any failures of equipment that they become aware of.
The Orthodontic Entity and the Orthodontist shall comply with all covenants and
provisions set forth in any leases for the Premises entered into or assumed by
Apple and Apple agrees to provide copies of all such leases to the Orthodontic
Entity and Orthodontist.
SECTION 4.8 ORTHODONTIC ENTITY EMPLOYEE BENEFIT PLANS.
(a) Effective immediately before the Acquisition Closing Date,
the Orthodontic Entity and Orthodontist shall freeze or terminate all
"employee benefit plans" (as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that are (i) sponsored or maintained by the Orthodontic Entity or
Orthodontist and (ii) are set forth on SCHEDULE 4.8(A) (the "Practice
Plans"). In connection with such actions, all account balances and
accrued benefits under all tax-qualified Practice Plans (within the
meaning of Section 401(a) of the Code) shall be made fully vested and
nonforfeitable.
(b) Effective on the Acquisition Closing Date, Orthodontist shall
become a participating employer in AOI's employee benefit plans set
forth on SCHEDULE 4.8(B) (the "AOI Plans") with respect to
Orthodontist's employees. Orthodontist acknowledges that AOI will
sponsor a defined contribution plan and that Orthodontist may be
precluded by Section 401(k)(2)(B)(i) from paying distributions in
connection with the termination of any Practice Plan that contains a
"cash or deferred arrangement" within the meaning of Section 401(k) of
the Code. Accordingly, AOI shall take all actions as it may determine to
be reasonable to facilitate the merger of the assets and liabilities of
any tax-qualified Practice Plan into a tax-qualified AOI Plan if such
merger of tax-qualified plans is requested by Orthodontist.
(c) With respect to any Practice Plan or AOI Plan, neither
Orthodontist nor AOI shall take any action or make any contribution to
such plan that would cause such plan to become disqualified for federal
tax purposes. Orthodontist shall not adopt, maintain, or continue any
employee benefit plan after the Acquisition Closing Date without the
prior written approval of AOI.
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(d) Expenses incurred in connection with Practice Plans,
including without limitation the compensation of counsel, accountants,
corporate trustees, and other agents shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
(e) The contribution and administration expenses for the
Orthodontist, Orthodontic Entity Professional Employees (which are not
expenses payable by the AOI Plans or by the participants in the AOI
Plans) shall be included in Orthodontist's operating budget.
Orthodontist and AOI shall not make employee benefit plan contributions
or payments for their respective employees in excess of such budgeted
amounts unless required by law or the terms of the AOI Plans. AOI shall
make contributions or payments with respect to the AOI Plans on behalf
of eligible Orthodontic Entity Professional Employees and Orthodontic
Entity Employees and those contributions or payments shall be treated as
Orthodontic Entity and Orthodontist Expenses, Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses as elsewhere provided in
this Agreement.
(f) AOI shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its
employees and employees of other entities aggregated with AOI pursuant
to Section 414(b), (c), (m) (o) of the Code.
SECTION 4.9 PEER REVIEW. Orthodontist and the Orthodontic Entity agree
to cooperate with Apple in establishing a system of peer review within and among
the orthodontic practices associated with Apple or its Affiliates. In connection
therewith, Orthodontist and the Orthodontic Entity agree to assist in the
formulation of orthodontic provider guidelines for each treatment or modality.
SECTION 4.10 ADDITIONAL ORTHODONTISTS. The Orthodontic Entity and
Orthodontist shall require, as a condition to an additional orthodontist
becoming a shareholder of the Orthodontic Entity, that such shareholder execute
an agreement in form and substance similar to this Agreement or become a party
to this Agreement by amendment hereto.
SECTION 4.11 CURRENT ORTHODONTIC PRACTICE. Notwithstanding anything
contained herein, in the Orthodontic Entity Professional Employment Agreements
or in the Acquisition Agreement to the contrary, Apple agrees to permit
Orthodontist to maintain the orthodontic practice described in Section 3.07 of
the Disclosure Statement, and that such arrangement will not violate any
provision of any agreement entered into in connection with the Acquisition.
ARTICLE V
RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by Apple
hereunder shall be feasible only if the Orthodontic Entity and Orthodontist
operate an active orthodontic practice to which the orthodontists associated
with the Orthodontic Entity devote their full business time and attention.
Accordingly, the parties hereto agree as follows:
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SECTION 5.1 RESTRICTIVE COVENANTS BY THE ORTHODONTIC ENTITY.
(a) During the term of this Agreement and for a period of two
years after termination of this Agreement for any reason other than
pursuant to SECTION 9.3 hereof, the Orthodontic Entity shall not without
the prior written consent of Apple (i) establish, operate or provide
orthodontic services at any orthodontic office, clinic or other health
care facility providing services similar to those provided by the
Orthodontic Entity, or (ii) engage or participate in any business which
engages in competition with the business conducted by AOI Group; in
either case anywhere within 25 miles of any Premises.
(b) The Orthodontic Entity agrees that in the event of a breach
of SECTION 5.1(a) above, the Orthodontic Entity shall pay to Apple an
amount equal to the greater of (i) $200,000, and (ii) an amount equal to
the gross cash receipts of the Orthodontic Entity for the preceding
twelve (12) months.
(c) The Orthodontic Entity agrees that the noncompetition
restrictions set forth in this Agreement are reasonable as to time and
geographic area.
SECTION 5.2 RESTRICTIVE COVENANTS OF ORTHODONTIST.
(a) Orthodontist agrees and acknowledges that, until the later of
(i) the expiration of the fifth anniversary of the date of this
Agreement, or (ii) five years from the date Orthodontist becomes a
shareholder of the Orthodontic Entity, Orthodontist will devote
Orthodontist's full business time and attention to rendering
professional services on behalf of the Orthodontic Entity and in
furtherance of the Orthodontic Entity's best interest.
(b) Orthodontist hereby agrees that during the period set forth
in SECTION 5.2(a) above and for a period of two (2) years after the
termination of this Agreement for any reason other than termination of
this Agreement as to the Orthodontist pursuant to SECTION 9.3 hereof,
Orthodontist will not (i) directly or indirectly establish, operate or
provide orthodontist services at any orthodontic office, clinic or other
facility providing services similar to those provided by the Orthodontic
Entity or engage or participate in or finance any business which engages
in direct competition with the business being conducted by AOI Group, in
either case, anywhere within 25 miles of any Premises, (ii) directly or
indirectly compete with the Orthodontic Entity or member of the AOI
Group in any way, (iii) act as an officer, director, employee,
consultant, shareholder, lender, guarantor or agent of, or otherwise
assist any entity which is engaged in any business of the same nature
as, or in direct competition with, the business in which the AOI Group
is now engaged or other business in which the AOI Group becomes engaged,
or (iv) induce or attempt to influence any employee of the AOI Group to
terminate his or her employment, or to hire any such employee, whether
or not so induced or influenced, except that any such employee may be
hired with the prior written consent of AOI.
(c) Orthodontist agrees that in the event of a breach of SECTION
5.2(a) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii)
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an amount equal to the gross cash receipts of the Orthodontic Entity for
the preceding twelve (12) months.
(d) Orthodontist agrees that in the event of a breach of SECTION
5.2(b) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii) an amount equal to the gross cash
receipts of the Orthodontic Entity for the preceding twelve (12) months.
(e) Orthodontist acknowledges and recognizes that enforcement of
SECTIONS 5.2(a) and 5.2(b) above by Apple will not interfere with
Orthodontist's ability to pursue a proper livelihood. Orthodontist
agrees that the noncompetition restrictions set forth in this Agreement
are reasonable as to time and geographic area.
Notwithstanding the foregoing, however, this SECTION 5.2 shall not
prohibit Orthodontist or any of his or her Affiliates (including the
Orthodontic Entity) from purchasing or holding an aggregate publicly
traded equity interest of up to 2%, so long as Orthodontist and his or
her affiliates (including the Orthodontic Entity and the other
orthodontist owning an equity interest in the Orthodontic Entity) do not
purchase or hold an aggregate equity interest of more than 5% in any
business in direct competition with the AOI Group.
SECTION 5.3 ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. The Orthodontic
Entity and Orthodontist recognize the proprietary interest of AOI Group in any
Confidential and Proprietary Information (as hereinafter defined) of AOI Group.
The Orthodontic Entity and Orthodontist acknowledge and agree that any and all
Confidential and Proprietary Information communicated to, learned of, developed
or otherwise acquired by the Orthodontic Entity and Orthodontist during the term
of this Agreement shall be the property of AOI Group. The Orthodontic Entity and
Orthodontist further acknowledge and understand that their disclosure of any
Confidential and Proprietary Information will result in irreparable injury and
damage to AOI Group. As used herein, "Confidential and Proprietary Information"
means all trade secrets and other confidential and/or proprietary information of
AOI Group, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, financial projections,
cost summaries, pricing formula, contracts analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than the Orthodontic Entity's and Orthodontist's original
patient records) prepared or performed for, by or on behalf of AOI Group by its
employees, officers, directors, agents, representatives, or consultants.
SECTION 5.4 COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY
INFORMATION. The Orthodontic Entity and Orthodontist acknowledge and agree that
AOI Group is entitled to prevent the disclosure of Confidential and Proprietary
Information. The Orthodontic Entity and Orthodontist agree at all times during
the term of this Agreement and thereafter to hold in strictest confidence and
not to disclose to any person, firm or corporation, other than to Orthodontic
Entity Professional Employees and persons engaged by Apple to further the
business of the Orthodontic Entity, and not to use except in the pursuit of the
business of AOI Group, Confidential and Proprietary Information, without the
prior written consent of Apple; unless (i) such information becomes known or
available to the public generally through no wrongful act
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of the Orthodontic Entity or Orthodontist or its employees, (ii) disclosure is
required by law or the rule, regulation or order of any governmental authority
under color of law, provided, that prior to disclosing any Confidential and
Proprietary Information pursuant to this clause (ii), the Orthodontic Entity and
Orthodontist shall, if possible, give prior written notice thereof to Apple and
provide Apple with the opportunity to contest such disclosure, or (iii) the
Orthodontic Entity and Orthodontist reasonably believe that such disclosure is
required in connection with a lawsuit to which the Orthodontic Entity or
Orthodontist is a party.
SECTION 5.5 RETURN OF MATERIALS TO APPLE. In the event of any
termination of this Agreement for any reason whatsoever, or at any time upon the
request of Apple, the Orthodontic Entity or the Orthodontist for whom the
termination is applicable will promptly deliver to Apple all documents, data and
other information in the Orthodontic Entity's or Orthodontist's possession that
contains any Confidential and Proprietary Information. The Orthodontic Entity
and Orthodontist shall not take or retain any documents or other information, or
any reproduction or excerpt thereof, containing any Confidential and Proprietary
Information, unless otherwise authorized in writing by Apple.
SECTION 5.6 [INTENTIONALLY DELETED].
SECTION 5.7 RESTRICTIVE COVENANTS OF ORTHODONTIC ENTITY PROFESSIONAL
EMPLOYEES. Each Orthodontic Entity Professional Employment Agreement contains
certain restrictive covenants thereof pertaining to covenants not to compete
with and not to divulge the confidential and proprietary information of Apple,
Orthodontist and the Orthodontic Entity. During the term of this Agreement, the
Orthodontic Entity and Orthodontist shall obtain written agreements which
contain restrictive covenants in substantially the same form from each
Orthodontic Entity Professional Employee (other than Orthodontic Entity
Employees) associated with the Orthodontic Entity or Orthodontist after the date
hereof. Except with respect to sections of the Orthodontic Entity Professional
Employment Agreements pertaining to matters of compensation, during the term of
this Agreement, the Orthodontic Entity and Orthodontist shall not amend, alter
or otherwise change any term or provision of any Orthodontic Entity Professional
Employment Agreement without the prior written consent of AOI, which consent
shall not be unreasonably withheld. Following termination of this Agreement, the
Orthodontic Entity and Orthodontist shall not amend, alter or otherwise change
any term or provision of the restrictive covenants contained in such Orthodontic
Entity Professional Employment Agreement unless such provisions are no longer in
force and effect pursuant to the terms of the applicable agreement at the time
of termination of this Agreement.
SECTION 5.8 RESTRICTIVE COVENANTS OF APPLE. Apple hereby agrees that
during the term of this Agreement, it will not engage or participate in or
finance any orthodontist's practice (whether through the acquisition of another
existing orthodontic practice, affiliation with another orthodontist or the
opening of a satellite office) anywhere within 3 miles of any location from
which the Orthodontic Entity provides orthodontic services to patients on the
date hereof (each an "Orthodontic Entity Location") without the prior written
consent of the Orthodontist.
SECTION 5.9 REMEDIES. Apple, Orthodontist and the Orthodontic Entity
acknowledge and agree that a remedy at law for any breach or attempted breach of
the provisions of this ARTICLE shall be inadequate, and therefore, either party
shall be entitled to specific performance
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and injunctive or other equitable relief in the event of any such breach or
attempted breach, in addition to any other rights or remedies available to
either party at law or in equity. Each party hereto waives any requirement for
the securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. If any provision of the restrictive
covenants contained in the Orthodontic Entity Professional Employment Agreements
or this ARTICLE V relating to the restrictive period, scope of activity
restricted and/or the territory described therein shall be declared by a court
of competent jurisdiction to exceed the maximum time period, scope of activity
restricted or geographical area such court deems reasonable and enforceable
under applicable law, the time period, scope of activity restricted and/or area
of restriction held reasonable and enforceable by the court shall thereafter be
the restrictive period, scope of activity restricted and/or the territory
applicable to such provision of the restrictive covenants or this ARTICLE V. The
invalidity or non-enforceability of any provision of the restrictive covenants
or this ARTICLE V in any respect shall not affect the validity or enforceability
of the remainder of the restrictive covenants or this ARTICLE V or of any other
provisions of this Agreement.
ARTICLE VI
FINANCIAL AND SECURITY ARRANGEMENTS
The Orthodontic Entity and Apple agree that the compensation set forth
in this ARTICLE VI is being paid to Apple in consideration of the services
provided and the substantial commitment and effort made by Apple hereunder and
that such fees have been negotiated at arm's length, and are fair and reasonable
and consistent with fair market value.
SECTION 6.1 SERVICE FEES. Apple shall be paid the following:
(a) Apple shall be reimbursed for the amount of all Orthodontic
Entity and Orthodontist Expenses and Excluded Orthodontic Entity and
Orthodontist Expenses incurred by Apple pursuant to the terms of this
Agreement; and
(b) Apple shall receive monthly compensation equal to $12,083.33
as adjusted pursuant to Section 6.2 (the "Service Fee").
SECTION 6.2 ADJUSTMENTS TO SERVICE FEE. On or before September 30 of
each year during the term of this Agreement, beginning September 30, 1997, the
parties shall review and negotiate in good faith (based on the fair value of
services provided hereunder and the original intent of the parties in entering
into this Agreement) to adjust prospectively the Service Fee for the following
calendar year, to be effective as of January 1 of such following calendar year.
If the parties cannot agree on the amount of such new Service Fee by September
30, then the existing Service Fee shall remain in effect, with an appropriate
adjustment to be made for inflation based on the Consumer Price Index published
for __________________.
SECTION 6.3 WORKING CAPITAL LOANS. As part of the services provided by
Apple hereunder, Apple may make available loans to assist the Orthodontic Entity
in maintaining reasonable cash flow for the payment of Excluded Orthodontic
Entity and Orthodontist Expenses.
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(a) Initial Working Capital. Apple shall make available to the
Orthodontic Entity an interest free line of credit ("Initial Working Capital
Line") for the initial working capital needs of the Orthodontic Entity, up to a
maximum amount equal to the reduction in Net Operating Amount attributable to
changes in patient payment schedules. The Orthodontic Entity shall be entitled
to draw funds from the Initial Working Capital Line up until six (6) months
after the Acquisition Closing Date ("Loan Termination Date"). The amount, if
any, of the Initial Working Capital Line outstanding on the Loan Termination
Date shall be repaid, in equal monthly installments (without interest) over a
two-year period commencing on the Loan Termination Date.
(b) Subsequent Working Capital. Apple may make available to the
Orthodontic Entity loans for subsequent working capital requirements in amounts
not to exceed Excluded Orthodontic Entity and Orthodontic Expenses. Such loans
shall accrue interest beginning on the day of the advance at an interest rate
equal to the prime rate then in effect, plus 1%. The loans, if any, shall be
repaid to Apple out of the Net Operating Amount generated in subsequent months
and become immediately due and payable if the Orthodontist terminates his
employment with the Orthodontic Entity, for any reason.
Any principle or interest paid to Apple by the Orthodontic Entity
pursuant to Sections 6.3(a) or 6.3(b) are Excluded Orthodontic Entity and
Orthodontist Expenses.
SECTION 6.4 SECURITY AGREEMENT. To secure their obligations hereunder,
the Orthodontic Entity and Orthodontist shall execute a Security Agreement in
substantially the form attached hereto as EXHIBIT 6.4 (the "Security
Agreement"), which Security Agreement grants a security interest in all of the
Orthodontic Entity's and Orthodontist's accounts receivable (as more fully
described in the Security Agreement) to Apple. In addition, the Orthodontic
Entity and Orthodontist shall cooperate with Apple and execute all necessary
documents in connection with the pledge of such accounts receivable to Apple or
at Apple's option, its lenders. All collections in respect of such accounts
receivable shall be deposited in a bank account at a bank designated by Apple.
To the extent that the Orthodontic Entity or Orthodontist comes into possession
of any payments in respect of such accounts receivable, the Orthodontic Entity
or Orthodontist shall promptly remit such payments to Apple.
ARTICLE VII
RECORDS
SECTION 7.1 RECORDS OWNED BY APPLE. All records (other than patients'
orthodontic records) relating in any way to the operation of the Orthodontic
Entity shall at all times be the property of Apple. During the term of, and upon
termination, of this Agreement, to the extent permitted by law, and expressly
acknowledging the confidential nature of same, Apple shall be entitled to have
access to and copy and retain such copies of patient orthodontic records.
SECTION 7.2 ACCESS TO RECORDS. During the term of this Agreement, and
for a reasonable time thereafter, the Orthodontic Entity and Orthodontists or
their respective agents shall have reasonable access during normal business
hours to the Orthodontic Entity's and Apple's financial records, including, but
not limited to, records of collections, expenses and
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disbursement as kept by Apple in performing Apple's obligations under this
Agreement, and the Orthodontic Entity and Orthodontist may copy any or all such
records.
ARTICLE VIII
INSURANCE AND INDEMNITY
SECTION 8.1 INSURANCE TO BE MAINTAINED BY THE ORTHODONTIC ENTITY AND
ORTHODONTIST. During the term of this Agreement, the Orthodontic Entity and
Orthodontist shall maintain comprehensive professional liability insurance with
such carrier as determined jointly by Apple and the Orthodontic Entity, with
limits of not less than $1,000,000 per claim and with aggregate policy limits of
not less than $3,000,000 per orthodontist and a separate limit for the
Orthodontic Entity (each such amount being subject to adjustment every three
years based on cost of living increases during any such period) with such
deductible as is mutually agreeable by Apple and the Orthodontic Entity. All
malpractice premiums and deductibles related thereto that are paid by Apple
shall be included in Orthodontic Entity and Orthodontist Expenses. All costs,
expenses and liabilities incurred by Orthodontic Entity, Orthodontist or Apple
in excess of the limits of such policies shall be included in Excluded
Orthodontic Entity and Orthodontist Expenses. Apple shall have the option of
providing such professional liability insurance through an alternative program,
provided such program meets the requirements of the Insurance Commissioner of
the State of ______________. If Orthodontist's existing professional liability
insurance program is cancelled and replaced by a professional liability
insurance program initiated by Apple, Apple shall pay over to Orthodontist any
unearned professional liability insurance premiums paid by Orthodontist to the
extent Orthodontist's carrier pays such amounts to Apple.
SECTION 8.2 INSURANCE TO BE MAINTAINED BY APPLE. During the term of this
Agreement, Apple will use reasonable efforts to provide and maintain, as a
Orthodontic Entity and Orthodontist Expense, comprehensive professional
liability insurance for all professional employees of Apple, and comprehensive
general liability and property insurance covering the Orthodontic Entity
premises and operations with such limits as determined reasonable and
appropriate by Apple and after obtaining the Orthodontic Entity's approval to
purchase any such insurance.
SECTION 8.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Orthodontic
Entity and Orthodontist shall obtain or require each of Orthodontist and their
Orthodontic Entity Professional Employees to obtain continuing liability
insurance coverage under either a "tail policy" or a "prior acts policy," with
the same limits and deductibles as the insurance coverage provided pursuant to
SECTION 8.1 for each orthodontist associated with the Orthodontic Entity upon
the termination of such orthodontist's relationship with the Orthodontic Entity
for any reason. In the event that neither the Orthodontic Entity, Orthodontist
nor the Orthodontic Entity Professional Employees obtains such continuing
liability insurance coverage, Apple may do so. The costs of continuing liability
insurance coverage shall be included in Orthodontic Entity and Orthodontist
Expenses unless such cost is borne by Orthodontist or the Orthodontic Entity
Professional Employee.
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SECTION 8.4 ADDITIONAL INSUREDS. The Orthodontic Entity, Orthodontist
and Apple agree to use their reasonable efforts to have each other named as an
additional insured on the other's respective professional liability insurance
programs. The additional cost, if any, associated therewith shall be paid by
Apple and shall be a Orthodontic Entity and Orthodontist Expense.
SECTION 8.5 INDEMNIFICATION. To the extent permitted under insurance
policies in place on the date hereof or policies to be entered into with
insurers acceptable to Apple, the Orthodontic Entity and Orthodontist, jointly
and severally, shall indemnify, defend and hold Apple, its officers, directors,
stockholders, employees, agents and consultants (other than such persons who are
also officers, directors, shareholders, employees, agents or consultants of the
Orthodontic Entity) harmless, from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees), whether or not covered by insurance (including self-insured insurance and
reserves), whenever arising or incurred, that are 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 Orthodontist, the Orthodontic Entity and/or its shareholders,
agents, employees and/or subcontractors (other than Apple) during the term of
this Agreement. Apple shall indemnify, defend and hold Orthodontist and the
Orthodontic Entity, its officers, shareholders, directors, employees, agents and
consultants, harmless from and against any and all liabilities, losses, damages,
claims, causes of action and expenses (including reasonable attorneys' fees),
whether or not covered by insurance (including self-insured insurance and
reserves) that are 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 Apple and/or its stockholders, agents, employees
and/or subcontractors (other than the Orthodontic Entity) during the term of
this Agreement.
ARTICLE IX
TERM AND TERMINATION
SECTION 9.1 TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the 20th anniversary hereof unless earlier terminated
pursuant to the terms of either SECTION 9.3 or SECTION 9.4 or automatically
extended pursuant to the terms of SECTION 9.2.
SECTION 9.2 EXTENDED TERM. Unless earlier terminated as provided for in
either SECTION 9.3 or SECTION 9.4, the term of this Agreement shall be
automatically extended for additional terms of five (5) years each, unless
either party delivers to the other party, not less than twelve (12) months nor
earlier than fifteen (15) months prior to the expiration of the preceding term,
written notice of such party's intention not to extend the term of this
Agreement.
SECTION 9.3 TERMINATION BY THE ORTHODONTIC ENTITY AND ORTHODONTIST. The
Orthodontic Entity or Orthodontist may terminate this Agreement with respect to
such party by giving written notice thereof to Apple (after the giving of any
required notices and the expiration
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of any applicable waiting periods set forth below) upon the occurrence of any
the following events:
(a) Apple shall admit in writing its inability to generally pay
its debts when due, apply for or consent to the appointment of a
trustee, receiver or liquidator of all or substantially all of its
assets, file a petition in voluntary bankruptcy or make an assignment
for the benefit of creditors, or upon other action taken or suffered by
Apple, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors, except for the filing of a petition in
involuntary bankruptcy against Apple, as the case may be, which is
dismissed within sixty (60) days thereafter.
(b) Apple shall default in the performance of any material duty
or material obligation imposed upon it by this Agreement and such
default shall continue for a period of forty-five (45) days after
written notice thereof has been given to Apple by the Orthodontic Entity
or Orthodontist, provided that the Orthodontic Entity may terminate this
Agreement, if and only if, such termination shall have been approved by
the affirmative vote of the holders of two-thirds of the interests of
the shareholders of the Orthodontic Entity.
SECTION 9.4 TERMINATION BY APPLE. Apple may terminate this Agreement in
its entirety or with respect to the Orthodontic Entity or Orthodontist by giving
written notice thereof to the Orthodontic Entity and Orthodontist (after the
giving of any required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any the following events:
(a) The Orthodontic Entity or Orthodontist shall admit in writing
its inability to generally pay its debts when due, apply for or consent
to the appointment of a trustee, receiver or liquidator of all or
substantially all of its assets, file a petition in voluntary bankruptcy
or make an assignment for the benefit of creditors, or upon other action
taken or suffered by the Orthodontic Entity, voluntarily or
involuntarily, under any federal or state law for the benefit of
debtors, except for the filing of a petition in involuntary bankruptcy
against the Orthodontic Entity or Orthodontist which is dismissed within
sixty (60) days thereafter.
(b) The Orthodontic Entity or Orthodontist shall default in the
performance of any material duty or material obligation imposed upon it
by this Agreement and such default shall continue for a period of ninety
(90) days after written notice thereof has been given to the Orthodontic
Entity or Orthodontist by Apple.
(c) The Orthodontic Entity, Orthodontist or any Orthodontic
Entity Professional Employee (i) engages in any conduct for which the
Orthodontist's or such Orthodontic Entity Professional Employee's
license to practice orthodontics is revoked or suspended, or (ii) is the
subject of any restrictions or limitations by any governmental authority
to such an extent that he, she or it cannot engage in the practice of
orthodontics.
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(d) With respect to Orthodontist, Orthodontist shall become
Disabled and Apple shall give notice of termination to Orthodontist's
estate within ninety (90) days of the date Apple becomes aware of such
Disability.
(e) With respect to Orthodontist, Orthodontist shall die.
SECTION 9.5 TERMINATION BY ORTHODONTIST.
(a) This Agreement shall terminate with respect to Orthodontist
in the event of a voluntary termination by the Orthodontist of his
Orthodontic Entity Professional Employment Agreement after the five (5)
year period set forth in SECTION 5.2(a); provided, however, that
Orthodontist shall give Apple at least one (1) year notice of such
voluntary termination. In the event termination with respect to the
Orthodontist in accordance with this SECTION 9.5, the restrictive
covenants contained in SECTION 5.2(b) shall apply with respect to
Orthodontist for two (2) years following the effective date of such
termination and not for the term of this Agreement.
(b) This Agreement (including the restrictive covenants in
Section ) shall terminate with respect to the Orthodontist in the event
(i) of the imposition (by a final, unappealable order) of any
restrictions or limitations by any governmental authority having
jurisdiction over the Orthodontist to such an extent that he cannot
engage in the professional practice of orthodontics for the five-year
period set forth in Section and (ii) this Agreement cannot be reformed
pursuant to Section or Section hereof to the extent necessary to render
such order inapplicable.
SECTION 9.6 EFFECTIVE DATE OF TERMINATION. Any termination of this
Agreement shall be effective (the "Termination Date") as follows:
(a) Immediately upon receipt of a termination notice pursuant to
either SECTION 9.3 or SECTION 9.4;
(b) Upon the expiration of this Agreement pursuant to SECTIONS
9.1 and 9.2; or
(c) If terminated for any reason other than as set forth in the
immediately preceding clauses (a) and (b), as of the Purchase Closing.
SECTION 9.7 PURCHASE OF ASSETS. Upon expiration or termination of this
Agreement for any reason other than pursuant to SECTION 9.4(d), SECTION 9.4(e)
or SECTION 9.5 hereof, the Orthodontic Entity shall have the option to, and
Apple shall have the option to require the Orthodontic Entity to,:
(a) Purchase from Apple at Fair Market Value all tangible assets
of Apple or its Affiliates that relate primarily to the Orthodontic
Entity other than Apple's accounting and financial records and other
records and files relating to the operation of the Orthodontic Entity
(the "Purchase Assets"), including, but not limited to, (i) all tangible
assets set forth on Apple's balance sheet as of the Termination Date
relating primarily
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to the Orthodontic Entity, (ii) all equipment, furniture, fixtures,
furnishings, inventory, supplies, improvements, additions and leasehold
improvements utilized by the Orthodontic Entity, and (iii) any real
estate owned by Apple or an Affiliate that is exclusively associated
with the Orthodontic Entity; and
(b) Assume all liabilities, debt, payables and other obligations
(including lease and other contractual obligations) of Apple and any of
its Affiliates which relate exclusively to the Orthodontic Entity or to
the performance of Apple's obligations under this Agreement (the
"Orthodontic Entity Related Liabilities").
The Orthodontic Entity shall be able to exercise its option under this Section
(unless this Agreement is terminated pursuant to SECTION 9.4) and Apple shall be
able to exercise its option under this Section (unless this Agreement is
terminated pursuant to SECTION 9.3) by giving written notice thereof in the
Termination Notice, if applicable, or prior to ninety (90) days before the
Termination Date if this Agreement is terminated pursuant to SECTIONS 9.1 and
9.2. In connection with the purchase and sale of the Purchase Assets pursuant to
this SECTION 9.7, Apple shall cause the Purchase Assets to be conveyed free of
any lien, claim or encumbrance, other than those arising out of the Orthodontic
Entity Related Liabilities.
SECTION 9.8 TERMS OF PURCHASE. The closing of the transactions
contemplated by SECTION 9.7 (the "Purchase Closing") shall occur (a) on the
Termination Date if this Agreement expires pursuant to the terms of SECTIONS 9.1
and 9.2, or (b) on a date mutually acceptable to the parties hereto that shall
be within 180 days of receipt of a termination notice by the applicable party
pursuant to either SECTION 9.3 or 9.4. Subject to the conditions set forth
below, at the Purchase Closing, Apple shall transfer and assign the Purchase
Assets to the Orthodontic Entity, and in consideration therefor, the Orthodontic
Entity shall (a) pay to Apple an amount in cash equal to the Fair Market Value
of the Purchase Assets as of the Purchase Closing and (b) assume the Orthodontic
Entity Related Liabilities. Each party shall execute such documents or
instruments as is reasonably necessary, in the opinion of each party and its
counsel, to effect the foregoing transaction. The Orthodontic Entity shall, and
shall use its best efforts to cause each shareholder of the Orthodontic Entity
to, execute such documents or instruments as may be necessary to cause the
Orthodontic Entity to assume the Orthodontic Entity Related Liabilities and to
release Apple from any liability or obligation with respect thereto.
SECTION 9.9 EXCEPTION TO PURCHASE. Notwithstanding anything contained
herein to the contrary, Apple shall not be obligated to sell the Purchase Assets
to the Orthodontic Entity if the Orthodontic Entity is not able to pay the
Purchase Price in cash and assume the Orthodontic Entity Related Liabilities at
the Purchase Closing. In such event, the Orthodontic Entity shall surrender the
Purchase Assets to Apple as of the Purchase Closing. If the Orthodontic Entity
fails to so surrender the Purchase Assets, Apple may, without prejudice to any
other remedy which it may have hereunder or otherwise, enter the Premises and
take possession of the Purchase Assets and expel or remove the Orthodontic
Entity and any other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor.
SECTION 9.10 EFFECT UPON TERMINATION. Upon the Termination Date, this
Agreement shall terminate and shall be of no further force and effect; provided,
however:
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(a) Apple shall use its best efforts to cooperate with the
Orthodontic Entity and Orthodontist for the appropriate transfer of
management services.
(b) Each party hereto shall provide the other party with
reasonable access to books and records owned by it to permit such
requesting party to satisfy reporting and contractual obligations which
may be required of it.
(c) On the Termination Date, any amounts due and owing but unpaid
to either Apple or the Orthodontic Entity (including, without
limitation, any amounts due under the Initial Working Capital Line) as
of the Termination Date shall be paid promptly by the appropriate party.
(d) Any and all covenants and obligations of either party hereto
which by their terms or by reasonable implication are to be performed,
in whole or in part, after the termination of this Agreement, shall
survive such termination, including, without limitation, the obligations
of the parties pursuant to the following Sections: 4.5, 4.7, 5.1, 5.2,
5.4, 5.5, 5.6, 5.7, 5.8, 6.4, 7.2, 8.5, 9.8, 9.10 and the applicable
provisions of ARTICLE X.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 ASSIGNMENT. Apple shall have the right to assign its rights
hereunder to AOI or any direct or indirect wholly owned subsidiary of Apple. The
Orthodontic Entity and Orthodontist hereby agree that Apple has the right to
grant a security interest in its rights hereunder to any lending institution
from which Apple or the AOI obtains financing. The Orthodontic Entity and
Orthodontist shall not have the right to assign their rights or obligations
hereunder (i) to any person who is not a graduate of an accredited orthodontic
program or (ii) to any person who is a graduate of an accredited orthodontic
program without the prior written consent of Apple, which consent shall not be
unreasonably withheld. In the event the parties are unable to agree upon the
reasonableness of any such assignment, then each of Apple and the Orthodontist
shall each promptly thereafter select an arbitrator and Apple and the
Orthodontist shall each give prompt notice to the other of such appointment in
writing. The two arbitrators first appointed under the terms hereof shall,
within five (5) days after receipt of notification of selection, together select
a third arbitrator. The decision of the majority of arbitrators so appointed
shall be final and binding upon the parties hereto and may be enforced in any
court of competent jurisdiction. The expense of the arbitrators appointed by
each party shall be borne by the party appointing such arbitrator, and the
expense of the third arbitrator shall be borne by both parties equally. The
arbitrators shall give prompt notice in writing of their decision to each party.
SECTION 10.2 AMENDMENTS. This Agreement shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modification(s) or amendment(s) shall be attached hereto.
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SECTION 10.3 WAIVER OF PROVISIONS. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
SECTION 10.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
SECTION 10.5 ATTORNEYS' FEES. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 10.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decision, a
regulatory agency or legal counsel in such a manner as to indicate that this
Agreement or any provision hereof may be in violation of such laws or
regulations, the Orthodontic Entity, Orthodontist and Apple shall amend this
Agreement as necessary to preserve the underlying economic and financial
arrangements between the Orthodontic Entity, Orthodontist and Apple and without
substantial economic detriment to either party. To the extent any act or service
required of Apple in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of
orthodontics, the performance of said act or service by Apple shall be deemed
waived and forever unenforceable and the provisions of this SECTION 10.6 shall
be applicable. Neither party shall claim or assert illegality as a defense to
the enforcement of this Agreement or any provision hereof; instead, any such
purported illegality shall be resolved pursuant to the terms of this SECTION
10.6 and SECTION 10.10. In the event any governmental authority, agency or court
institutes proceedings against Apple, the Orthodontic Entity or the Orthodontist
challenging the legality, validity or enforceability of any provision of this
Agreement, Apple agrees that the fees, expenses and disbursements of counsel
engaged to represent Apple, the Orthodontic Entity and the Orthodontist shall be
Apple Expenses.
SECTION 10.7 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
SECTION 10.8 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 10.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such
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illegal, invalid or unenforceable provision never comprised a part hereof; and
the remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
SECTION 10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF __________. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE PERFORMABLE IN __________.
SECTION 10.11 NO WAIVER; REMEDIES CUMULATIVE. Apple shall not by any act
(except by written instrument pursuant to SECTION 10.3 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of Apple, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. 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.
SECTION 10.12 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. 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.
SECTION 10.13 COMMUNICATIONS. The Orthodontic Entity, Orthodontist and
Apple agree that good communication between the parties is essential to the
successful performance of this Agreement, and each pledges to communicate fully
and clearly with the other on matters relating to the successful operation of
the Orthodontic Entity and the practice of orthodontics by Orthodontist.
SECTION 10.14 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 10.15 GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
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SECTION 10.16 REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 10.17 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Apple: Apple Orthodontix, Inc.
One West Loop South
Suite 100
Houston, Texas 77027
Fax No.: (713) 964-6883
Attn: President
with a copy to: Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
Fax No.: (713) 752-4221
Attn: Richard S. Roth
If to the Orthodontic Entity:
---------------------------------
with a copy to:
SECTION 10.18 CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize upon
any final court judgment arising out of this Agreement), such suit, action or
proceeding shall be instituted only in a state or federal court in Houston,
Texas. Each of the parties hereto consents to the IN PERSONAM jurisdiction of
any state or federal court in Houston, Texas, and waives any objection to the
venue of any such suit, action or proceeding. The parties hereto recognize that
courts outside Houston, Texas, may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Houston, Texas, the party instituting such proceeding shall indemnify
any other party hereto for any losses and expenses that may result from the
breach of the foregoing covenant to institute such proceeding only in a state or
federal court in Houston, Texas, including without limitation any additional
expenses incurred as a result of litigating in another jurisdiction, such
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as reasonable fees and expenses of local counsel and travel and lodging expenses
for parties, witnesses, experts and support personnel.
SECTION 10.19 SERVICE OF PROCESS. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
SECTION 10.17 and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
SECTION 10.20 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 10.21 DEFINED TERMS. Terms used in the Exhibits attached hereto
with their initial letter capitalized and not otherwise defined therein shall
have the meanings assigned to such terms in this Agreement.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Orthodontic Entity:
______________________________
By: __________________________
Title: _______________________
Orthodontist:
______________________________
_______________, D.D.S.
Apple:
APPLE ORTHODONTIX, INC.
By: __________________________
Title: _______________________
31
<PAGE>
LIST OF EXHIBITS
Exhibit Description
- ------- -----------
1.1(u) Orthodontic Entity Professional Employment Agreements
6.4 Form of Security Agreement
<PAGE>
EXHIBIT 1.1(U)
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
-------------------------------
and
--------------------
ORTHODONTIC ENTITY PROFESSIONAL EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 6.4
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
----------------------------------
and
-------------------
FORM OF SECURITY AGREEMENT
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of the
Registration Statement No. 333-22785 by Apple Orthodontix, Inc.
ARTHUR ANDERSEN LLP
May 11, 1997
