AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
APPLE ORTHODONTIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8021 74-2795193
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
______________________
APPLE ORTHODONTIX, INC. W. DANIEL COOK
2777 ALLEN PARKWAY, SUITE 700 APPLE ORTHODONTIX, INC.
HOUSTON, TEXAS 77019 2777 ALLEN PARKWAY, SUITE 700
(713) 852-2500 HOUSTON, TEXAS 77019
(ADDRESS, INCLUDING ZIP CODE, AND (713) 852-2504
TELEPHONE NUMBER, (NAME AND ADDRESS, INCLUDING ZIP
INCLUDING AREA CODE, OF CODE, AND TELEPHONE
REGISTRANT'S PRINCIPAL EXECUTIVE NUMBER, INCLUDING AREA CODE, OF
OFFICES) AGENT FOR SERVICE)
------------------------
COPIES TO:
RICHARD S. ROTH
JACKSON WALKER L.L.P.
1100 LOUISIANA
SUITE 4200
HOUSTON, TEXAS 77002
_______________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
_______________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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. [X]
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, other than securities
offered only in connection with dividend or interest reinvestment plans. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
_________________________________________________________________________________________________________
Class A Common Stock,
$.001 par value........ 1,340,087 $2.9375 $3,936,506 $1,162
=========================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 and based upon the
average of the high and low prices of the Common Stock as reported on the
American Stock Exchange on September 10, 1998.
_______________________
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.
================================================================================
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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 SEPTEMBER 14, 1998
PROSPECTUS
1,340,087 SHARES
[LOGO]
CLASS A COMMON STOCK
_______________________
This Prospectus relates to 1,340,087 shares (the "Shares") of Class A
Common Stock ("Common Stock") of Apple Orthodontix, Inc. ("Apple" or the
"Company"). The Shares may be offered for sale or otherwise transferred from
time to time by the stockholders of Apple named herein (the "Selling
Stockholders") in transactions (which may include block transactions) on the
American Stock Exchange, in the over-the-counter market, in negotiated
transactions or otherwise, at fixed prices, which may be changed, at market
prices prevailing at the time of sale, at negotiated prices, without
consideration, or by any other legally available means. The Selling Stockholders
may offer the Shares to third parties (including purchasers) directly or by or
through brokers, dealers, agents or underwriters who may receive compensation in
the form of discounts, concessions, commissions or otherwise. The Selling
Stockholders and any brokers, dealers, agents or underwriters that participate
in the distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event any discounts, concessions and commissions received by any such
brokers, dealers, agents or underwriters and any profit on resale of the Shares
purchased by them may be deemed to be underwriting commissions, concessions or
discounts under the Securities Act. The aggregate net proceeds to the Selling
Stockholders from the sale of the Shares will equal the purchase price of such
Shares less any discounts, concessions or commissions. See "Plan of
Distribution." The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders. The Company will pay all expenses incurred
in connection with the offering contemplated hereby (the "Offering"), other than
underwriting discounts and selling concessions or commissions, if any, and fees
and expenses of counsel for the Selling Stockholders.
All of the shares of Common Stock that may be offered hereby were issued or
may be issued to the Selling Stockholders by the Company in connection with the
Company's acquisition of certain assets from, and its affiliation in 1997 with,
orthodontic practices in Alberta, British Columbia and Ontario, Canada. All of
the Shares are or, upon issuance, will be "restricted securities" under the
Securities Act prior to their sale hereunder. This Prospectus has been prepared
for the purpose of registering the Shares under the Securities Act to enable the
Selling Stockholders to make future sales to the public without restriction. See
"Selling Stockholders."
The Common Stock is listed on the American Stock Exchange under the symbol
"AOI." On September 11, 1998, the last reported sales price for the Common Stock
as reported on the American Stock Exchange was $3.0625 per share. The Common
Stock is entitled to one vote per share while the Company's Class B Common Stock
(the "Class B Stock") is entitled to three-tenths (3/10ths) of a vote per share.
_______________________
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
_______________________
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.
The date of this Prospectus is September , 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information 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. The Common Stock is listed on the American Stock Exchange. The
Company's reports, proxy statements and other information are available for
inspection at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006-1881.
The Company has filed with the Commission a Registration Statement on Form
S-3 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 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 Commission's offices or copied at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated in this Prospectus by reference and are
made a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and Amendments No. 1 and No. 2 thereto (the "Company 10-K");
2. the portions of the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders held on July 27, 1998 that have been incorporated
by reference into the Company 10-K;
3. Current Report on Form 8-K, filed on February 24, 1998;
4. Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1998 and June 30, 1998; and
5. the description of the Common Stock that is contained in the
Registration Statement on Form 8-A filed on May 12, 1997 pursuant to
Section 12 of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, expect as so modified or superseded. The Company will
provide without charge to each person, including any beneficial owner, to whom a
copy of this Prospectus is delivered, upon written or oral request of such
person, a copy of any or all of the information that has been incorporated by
reference in this Prospectus (excluding exhibits to such information which are
not specifically incorporated by reference into such information). Requests for
such information should be directed to Apple Orthodontix, Inc., 2777 Allen
Parkway, Suite 700, Houston, Texas 77019, Attention: Investor Relations,
Telephone (713) 852-2500.
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PROSPECTUS SUMMARY
UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "APPLE"
OR THE "COMPANY" MEAN APPLE ORTHODONTIX, INC. TOGETHER WITH ITS SUBSIDIARIES,
(II) "AFFILIATED PRACTICES" MEAN THE ORTHODONTIC PRACTICES WITH WHICH THE
COMPANY HAS AFFILIATED AND THOSE, IF ANY, WITH WHICH THE COMPANY AFFILIATES 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. AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Apple is a leading provider of practice management services (which exclude
the management and delivery of orthodontic services) to orthodontic practices in
the United States and Canada. The Company offers its Affiliated Practices a full
range of such services designed to facilitate the delivery of high-quality,
affordable orthodontic treatment to consumers. The Company's Affiliated
Practices benefit from a sophisticated, Company-developed practice operating
approach designed to (i) stimulate demand in their local markets by increasing
consumer awareness of the benefits, availability and affordability of
orthodontic treatment, (ii) improve the productivity and profitability of their
practices and (iii) leverage the benefits of orthodontist affiliation by
providing basic services that include clinical and financial information
management, access to capital and sophisticated technology, group purchasing and
comprehensive marketing techniques.
The Company seeks to grow through affiliations with additional orthodontic
practices and the development of new offices that complement geographic areas
served by Affiliated Practices. The Company earns revenue by providing
management, administrative, development and other services to its Affiliated
Practices. As of August 12, 1998, the Company provided management services to 66
orthodontic practices representing 90 orthodontists operating in 19 states in
the United States and 3 provinces in Canada.
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 approximately 3% being affiliated with public orthodontic
practice management companies. 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. Seventy percent of orthodontic services
are performed on a private pay, fee-for-service basis, 25% are covered by
traditional dental insurance (generally with a 50% or greater copayment by the
patient) and less than 5% are reimbursed from managed care payor sources because
of the elective nature of the service. Management believes that the potential
market for orthodontic services could be significantly increased based on
growing acceptance among adult consumers and industry data that indicate that
only one out of five children who could benefit from orthodontics receives
treatment. According to the most recent statistics available from studies by the
Journal of Clinical Orthodontists, the median orthodontic practice in the United
States generated $518,800 in revenues and started 180 new cases in 1996 and
experienced a case acceptance rate of 60% in 1994. The traditional orthodontic
practice relies primarily on referrals from general dentists and less than 8% of
practices utilize sophisticated marketing techniques such as commercial
advertising.
Through its practice operating approach, the Company seeks to stimulate
productivity and internal growth within its Affiliated Practices. To accomplish
this objective, the Company has developed an operating approach consisting
primarily of (i) implementing practice-building and external marketing programs
designed to generate new case starts through increased referrals from existing
and former patients
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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 communications with patients and prospective patients and
increase productivity, (v) developing new offices to expand the scope of the
geographic markets served by Affiliated Practices and (vi) utilizing a
customized management information system to provide detailed financial and
operating data and related analyses to Affiliated Practices and management. The
Company believes that its approach has resulted in local market expansion,
increased new case starts and practice profitability, greater orthodontist
productivity and heightened patient satisfaction within its existing Affiliated
Practices.
The Company is pursuing 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
intends to expand its network of Affiliated Practices through future
affiliations and new office development. Management believes that, because of
the highly fragmented nature of the industry, there are numerous orthodontic
practices that are attractive candidates to become Affiliated Practices. The
Company focuses on candidates that have favorable reputations in their local
markets and the desire to implement the Company's practice operating approach.
The Company seeks to build upon the reputations and relationships of the
orthodontists associated with the existing Affiliated Practices to identify and
develop 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, provides the Company with advantages in identifying, negotiating and
consummating future affiliations.
RECENT DEVELOPMENTS
In connection with its initial public offering (the "IPO") in May 1997, the
Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of, and entered into agreements to provide long-term
management services to, 31 orthodontists operating in 58 offices located in 13
states in the United States and in Alberta, Canada (the "Founding Affiliated
Practices"). From the date of the IPO through August 12, 1998, the Company has
affiliated with an additional 59 orthodontists, increasing the total number of
existing Affiliated Practices to 66, which are operating in 122 offices. In
addition to these affiliations, the Company is negotiating and will continue to
negotiate to affiliate with additional orthodontic practices; however, although
the Company intends to aggressively pursue these and other affiliations, there
can be no assurance that any of such affiliations will be consummated.
On August 12, 1998, the Company announced (i) A. Stone Douglass had
replaced John G. Vondrak, D.D.S. as the Chief Executive Officer of the Company
and (ii) James E. Bobbitt had replaced Michael W. Harlan as Chief Financial
Officer of the Company. Mr. Douglass is also the President of the Company and
has been elected to the Company's Board of Directors, which Dr. Vondrak will
continue to serve on as Chairman of the Board.
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THE OFFERING
Common Stock that may be offered for
sale hereby........................... 1,340,087 shares
Common Stock outstanding after the
Offering.............................. 11,117,624 shares(1)
Class B Stock outstanding after the
Offering.............................. 2,759,828 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 currently entitled
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 the Class B Stock possess ordinary
voting rights and vote together as a
single class in respect of other
corporate matters. The Class B Stock
is convertible into Common Stock in
certain circumstances.
American Stock Exchange Symbol.......... AOI
________
(1) Includes the 1,340,087 shares that may be offered for sale hereby but
excludes (i) an aggregate of approximately 1,239,367 shares of Common Stock
issuable upon exercise of stock options outstanding at a weighted average
exercise price of approximately $6.67 per share under Apple's 1997 Stock
Compensation Plan (the "1997 Stock Compensation Plan"), (ii) approximately
94,747 shares available for future awards under the 1997 Stock Compensation
Plan and (iii) 180,000 shares of Common Stock issuable upon the exercise of
a warrant issued to an affiliate of TriCap Funding I, L.L.C. ("TriCap"),
with an exercise price per share of $7.00, which warrant was subsequently
distributed to three investors in such affiliate, including William
Sherrill, a director of the Company.
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. PARTS I AND II OF THE 1997 JOURNAL OF CLINICAL
ORTHODONTISTS ORTHODONTIC PRACTICE STUDY (THE "1997 JCO STUDY"), WHICH CONTAIN
CERTAIN COMPARABLE INFORMATION FOR 1995 AND 1996, HAVE RECENTLY BECOME AVAILABLE
AND ARE CITED HEREIN AS APPROPRIATE. THE INFORMATION COMPILED IN THE 1995 JCO
STUDY AND THE 1997 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 RELATES TO
GENERAL AND SPECIALTY DENTISTS WHO ALSO PERFORM ORTHODONTIC SERVICES.
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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 CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS AND ANALYSES MADE BY THE
COMPANY IN LIGHT OF ITS EXPERIENCE AND ITS PERCEPTION OF HISTORICAL TRENDS,
CURRENT CONDITIONS, EXPECTED FUTURE DEVELOPMENTS AND OTHER FACTORS THE COMPANY
BELIEVES ARE IMPORTANT UNDER THE CIRCUMSTANCES. SUCH STATEMENTS ARE SUBJECT TO A
NUMBER OF ASSUMPTIONS, RISKS, AND UNCERTAINTIES THAT COULD CAUSE ACTUAL FUTURE
ACTIVITIES AND RESULTS OF OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE SET
FORTH IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL ACTIVITIES AND RESULTS TO DIFFER INCLUDE, WITHOUT LIMITATION, THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY.
LIMITED COMBINED OPERATING HISTORY
The Company was incorporated in July 1996 and conducted no operations
before its IPO in May 1997 other than in connection with the IPO and affiliation
with the Founding Affiliated Practices. Although each of the existing Affiliated
Practices operated independently before affiliation with the Company, the
Company has a limited combined operating history. As a result, there can be no
assurance that the process of integrating the management and administrative
functions of the Affiliated Practices will be successful or that the Company's
management will be able to effectively or profitably manage these operations or
successfully implement the Company's operating or expansion strategies. Failure
by the Company to successfully implement its operating or expansion strategies
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RELIANCE ON AFFILIATED PRACTICES AND ORTHODONTISTS
The Company receives fees for services provided to the Affiliated Practices
under long-term service agreements (the "Service Agreements"). It does not
employ orthodontists or control the practice of orthodontics by the
orthodontists employed by the Affiliated Practices, and its services revenue
generally depends on revenue generated by the Affiliated Practices. In some
cases, the fees are based on the costs and expenses the Company incurs in
connection with providing services. The profitability of the Affiliated
Practices, as well as the performance of the individual orthodontists employed
by the Affiliated Practices, affect the Company's profitability.
The revenues of the Affiliated Practices (and, therefore, the success of
the Company) are dependent on fees generated by the orthodontists employed by
the Affiliated Practices. In connection with the Service Agreements, each
orthodontist affiliated with an Affiliated Practice enters into an employment
agreement, generally with a term ranging from five to seven years, 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. In addition, 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. 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.
RISKS ASSOCIATED WITH EXPANSION STRATEGY
The success of the Company's expansion strategy depends on a number of
factors, including the Company's ability to (i) identify attractive candidates
to become Affiliated Practices, (ii) affiliate with Affiliated Practices on
favorable terms, (iii) adapt the Company's structure to comply with present or
future
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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) expand the Company's infrastructure and management to accommodate expansion
and (v) obtain suitable financing to facilitate its expansion program.
Identifying candidates to become Affiliated Practices and proposing, negotiating
and implementing advantageous affiliations with such groups can be a lengthy,
complex and costly process. 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 provide services
effectively 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 affiliations
could result in significant dilution to then-existing stockholders. In addition,
future affiliations accounted for as purchases may result in substantial noncash
amortization charges for intangible assets in the Company's statements of
operations.
COMPETITION
The Company faces substantial competition from other companies to establish
affiliations with additional orthodontic practices. The Company is aware of a
number of other public and private practice management companies focused on
orthodontics, as well as several companies pursuing similar strategies in
dentistry and other segments of the health care industry. The Company is aware
that general dental practice management companies have, or intend to, provide
orthodontic services and seek to affiliate with or employ orthodontists. Certain
of these competitors have greater financial and other resources than the
Company. 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
operates. The Affiliated Practices face 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, that additional
competitors will not enter their markets or that additional competition will not
have a material adverse effect on the Company.
GOVERNMENT REGULATION
Various U.S. federal and state laws as well as Canadian laws 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, as well as certain
other activities. The specific restrictions against the corporate practice of
orthodontics, as well as the interpretation of those restrictions by state
regulatory authorities, vary from jurisdiction to jurisdiction. The restrictions
are generally designed to prohibit an entity not wholly owned by orthodontists
(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. Apple does not acquire any professional
assets or employ any orthodontists who provide orthodontic services at any of
the Affiliated Practices' locations. The laws of many jurisdictions also
prohibit orthodontists from sharing professional fees with non-orthodontic
entities. 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 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
7
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authorities that have 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 actions 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 one other orthodontic practice in the United States that
utilizes a service mark similar to the Company's, which practice is not located
in a market where any of the existing Affiliated Practices' offices are located.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part on the
continued service of its senior management and other key personnel. There can be
no assurance that 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 also depends
on the Company's ability to attract and retain additional high-quality
personnel.
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
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 is named as an
additional insured party on the liability insurance policies of the Affiliated
Practices. The existing Affiliated Practices 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. The Company expects that it will require future Affiliated
Practices to maintain comparable insurance coverage. In the event an Affiliated
Practice employs more than one orthodontist, that practice will maintain
insurance with a separate limit for claims against that practice in an amount
acceptable to Apple. There can be no assurance 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.
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. The shares being sold in the Offering will be freely tradable unless
acquired by affiliates of the Company.
Concurrently with the closing of its IPO in May 1997, the orthodontist
owners of the Founding Affiliated Practices received, in the aggregate,
3,682,554 shares of Common Stock as a portion of the
8
<PAGE>
consideration for the purchase by the Company of the assets of their practices.
As of August 13, 1998, certain other stockholders of the Company held, in the
aggregate, an additional 2,759,828 shares of Class B Stock. None of the
foregoing shares was acquired in a transaction 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. Such shares are eligible for resale
in accordance with Rule 144 under the Securities Act, subject to the applicable
volume limitations and other requirements of Rule 144.
In June 1997, the Company registered 2,000,000 shares of Common Stock for
use by the Company as all or a portion of the consideration to be paid in future
affiliation transactions. As of August 13, 1998, approximately 1,433,917 of
these shares had been issued to the orthodontist owners of the Company's new
Affiliated Practices. These shares are, and the remaining approximately 566,083
of these shares will be, generally freely tradeable upon issuance; however, each
party that has received these shares of Common Stock has contractually agreed
with the Company not to sell any of such shares for a period of one year from
receipt. The Company anticipates that the agreements entered into the connection
with future affiliations will contractually restrict the resale of all or a
portion of the shares issued in these transactions for varying periods of time.
Between May 29, 1997 and December 31, 1997, the Company affiliated with
several practices in Canada. For Canadian legal reasons, the stock issued to the
owners of those practices (which was not registered under the Securities Act)
was of a Canadian subsidiary of the Company, rather than of the Company itself.
Under certain circumstances, the subsidiary stock is exchangeable by the holders
for an aggregate of 1,340,087 shares of Common Stock, which are contractually
restricted for one year from the date of issuance of the subsidiary stock. Such
shares of Common Stock would not be permitted to be sold without registration
under the Securities Act or an applicable exemption therefrom; however, the
Company has filed the Registration Statement of which this Prospectus
constitutes a part for the resale of such shares of Common Stock. Pursuant to
this Prospectus, the holders will be permitted to sell such shares of Common
Stock without restriction.
As of September 1, 1998, the Company had outstanding under the 1997 Stock
Compensation Plan options to purchase approximately 1,239,367 shares of Common
Stock. In October 1997, the Company filed a registration statement on Form S-8
to register 980,000 shares issuable in connection with awards under the 1997
Stock Compensation Plan.
NEED FOR ADDITIONAL FINANCING
The Company's expansion strategy requires substantial capital resources.
Capital is needed not only for the affiliation with future Affiliated Practices,
but for the effective integration, operation and expansion of the existing and
future 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 loans by the
Company to Affiliated Practices under various circumstances. Such loans
generally bear interest at prime plus one percent and are to be repaid over
varying periods of time not to exceed five years. The extent to which the
Company is able or willing to use shares of Common Stock to enter into future
affiliations or provide future financing will depend on the market value of the
Common Stock from time to time and, in the case of affiliations, the willingness
of owners of potential Affiliated Practices to accept Common Stock as full or
partial payment of consideration for affiliations. 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. 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.
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 affiliations and new
9
<PAGE>
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.
POSSIBLE VOLATILITY OF STOCK PRICE
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 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 the Company's ability to open new
offices, affiliations by the Company or its competitors, government relations,
developments or disputes concerning proprietary rights, changes in health care
policy in the United States and Canada, the issuance of stock market analyst
reports and recommendations, and economic and other external factors beyond the
control of the Company, as well as operating results of the Company and
fluctuations in the Company's financial results.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") and Bylaws and of Delaware
corporation 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
Common Stock. The Restated 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 Delaware General Corporation Law, 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.
ABSENCE OF DIVIDENDS
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. In addition, the Company's existing credit facility prohibits the
payment of dividends.
THE COMPANY
Apple is a leading provider of practice management services (which exclude
the management and delivery of orthodontic services) to orthodontic practices in
the United States and Canada. The Company offers its Affiliated Practices a full
range of such services to facilitate the efficient and productive delivery of
high-quality, affordable orthodontic treatment to consumers. As of August 12,
1998, the Company provided services to 66 orthodontic practices representing 90
orthodontists in 19 states in the United States and 3 provinces in Canada.
The Company's principal executive offices are located at 2777 Allen
Parkway, Suite 700, Houston, Texas 77019, and its telephone number is (713)
852-2500.
10
<PAGE>
RECENT DEVELOPMENTS
In connection with its IPO in May 1997, the Company acquired substantially
all the tangible and intangible assets and assumed certain liabilities of, and
entered into agreements to provide long-term services to, the Founding
Affiliated Practices, comprised of 31 orthodontists operating in 58 offices
located in 13 states in the United States and in Calgary, Alberta. Since the
date of the IPO through August 12, 1998, the Company has affiliated with an
additional 59 orthodontists, increasing the total number of existing Affiliated
Practices to 66, which are operating in 122 offices. In addition to these
affiliations, the Company is negotiating and will continue to negotiate to
affiliate with additional orthodontic practices; however, although the Company
intends to aggressively pursue these and other affiliations, there can be no
assurance that any of such affiliations will be consummated.
In connection with the consummation of affiliations with Canadian
orthodontic practices (i) Canadian subsidiaries of Apple created and issued to
the Selling Stockholders shares in certain series of exchangeable preferred
stock (the "Exchangeable Shares") and (ii) Apple, under certain circumstances,
obligated itself to either pay a redemption price for each Exchangeable Share
equal to the market price per share of Common Stock or issue up to an aggregate
of 1,340,087 shares of Common Stock, upon the exchange of the outstanding
Exchangeable Shares by the holders thereof. Apple also agreed to register all of
the shares of Common Stock it has issued or will issue upon exchange of the
outstanding Exchangeable Shares to enable the resale of such shares of Common
Stock without restriction. In connection with such acquisitions, the Company
agreed to file the Registration Statement of which this Prospectus constitutes a
part.
On August 12, 1998, the Company announced (i) A. Stone Douglass had
replaced John G. Vondrak, D.D.S. as the Chief Executive Officer of the Company
and (ii) James E. Bobbitt had replaced Michael W. Harlan as Chief Financial
Officer of the Company. Mr. Douglass is also the President of the Company and
has been elected to the Company's Board of Directors, which Dr. Vondrak will
continue to serve on as Chairman of the Board.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares that
may be offered for sale hereby. All of the Shares may be offered for sale by the
Selling Stockholders.
11
<PAGE>
SELLING STOCKHOLDERS(1)
The following table sets forth certain information with respect to the
shares of Common Stock that, under certain circumstances, may be exchanged for
the Exchangeable Shares, and be offered for sale hereby, by the Selling
Stockholders as of September 1, 1998. The table also sets forth certain
information with respect to shares of Class B Stock beneficially owned by the
Selling Stockholders. Each Selling Stockholder has sole voting and investment
power with respect to the shares of Common Stock and Class B Stock held by such
Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
OF CLASS B
NUMBER OF STOCK
SHARES OF AFTER
NUMBER OF CLASS B OFFERING
SHARES OF STOCK -----------
COMMON STOCK PERCENT OF BENEFICIAL OWNERSHIP OWNED NUMBER
NAME OF OWNED BEFORE OUTSTANDING OF COMMON STOCK BEFORE OF SHARES
SELLING STOCKHOLDER OFFERING SHARES AFTER OFFERING(1) OFFERING OWNED
------------------- ------------ ------------ -------------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Mark E. Antosz, D.D.S................... 141,936 1.3% -- -- --
Douglas Brandt, D.D.S................... 24,055 * -- -- --
Duncan Y. Brown, D.D.S.................. 315,612 2.8 -- 32,702 32,702
Terry D. Carlyle, D.D.S................. 97,003 * -- -- --
John D. Doucet, D.D.S................... 118,668 1.1 -- -- --
William Finnegan, D.D.S................. 76,441 * -- -- --
John F. Kalbfleisch, D.D.S.............. 128,502 1.2 -- -- --
Paul C. Levin, D.D.S.................... 128,503 1.2 -- -- --
Federick Murrell, D.D.S................. 128,503 1.2 -- -- --
Charles Smith, D.D.S.................... 66,486 * -- -- --
Gary F. Stauffer, D.D.S................. 84,697 * -- -- --
Donald G. Woodside, D.D.S............... 29,681 * -- -- --
--------- --------- --------- ------ ------
Total............................... 1,340,087 12.1% -- 32,702 32,702
========= ========= ========= ====== ======
</TABLE>
PERCENT OF
NAME OF OUTSTANDING
SELLING STOCKHOLDER SHARES
- ---------------------------------------- ------------
Mark E. Antosz, D.D.S................... --
Douglas Brandt, D.D.S................... --
Duncan Y. Brown, D.D.S.................. 1.2%
Terry D. Carlyle, D.D.S................. --
John D. Doucet, D.D.S................... --
William Finnegan, D.D.S................. --
John F. Kalbfleisch, D.D.S.............. --
Paul C. Levin, D.D.S.................... --
Federick Murrell, D.D.S................. --
Charles Smith, D.D.S.................... --
Gary F. Stauffer, D.D.S................. --
Donald G. Woodside, D.D.S............... --
------------
Total............................... 1.2%
============
- ----------
* Less than 1%.
(1) The exact number of Shares to be sold by a Selling Stockholder at any time
or from time to time cannot be determined but each Selling Stockholder may
offer for sale all of the shares of Common Stock he receives in exchange for
the Exchangeable Shares. Assuming the sale of the Shares registered hereby,
none of the Selling Stockholders will own 1% or more of the outstanding
Common Stock after each sale.
The Company will pay certain expenses of registering the shares of Common
Stock to be offered by the Selling Stockholders under the Securities Act,
including registration and filing fees, printing expenses and the fees and
disbursements of the counsel and accountants for the Company. The Selling
Stockholders will pay all fees and disbursements of their own counsel and all
brokerage fees, commissions and expenses, if any, applicable to the shares of
Common Stock being sold by them. The Company will indemnify each of the Selling
Stockholders against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the Selling Stockholders may be
required to make in respect thereof. Each of the Selling Stockholders has agreed
to indemnify the Company against certain liabilities, including liabilities
under the Securities Act, with respect to information provided by that Selling
Stockholder in connection with the Offering.
The Selling Stockholders are the orthodontist owners of Affiliated
Practices in Canada who received the Exchangeable Shares held by them as a
portion of the consideration for the purchase by the Company of the assets of
their practices. None of the Selling Stockholders is an officer or director of
the Company.
12
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that the Shares covered
hereby may be offered and sold by the Selling Stockholders, or by purchasers,
transferees, donees, pledgees or other successors in interest, in private or
public transactions, directly or by or through brokers, dealers, agents or
underwriters who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or from purchasers
of the Shares for whom they may act as agent. Sales and transfers of the Shares
may be effected from time to time in one or more transactions on the American
Stock Exchange, in the over-the-counter market, in negotiated transactions or
otherwise, at a fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at negotiated prices, or without consideration,
or by any other legally available means. Any or all of the Shares may be sold or
transferred from time to time by means of (a) a block trade in which the broker
or dealer so engaged will attempt to sell the Shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; (d) the
writing of options on the Shares; (e) pledges as collateral to secure loans,
credit or other financing arrangements and subsequent foreclosure, if any,
thereunder; (f) gifts, donations and contributions; and (g) any other legally
available means. To the extent required, the number of Shares to be sold or
transferred, the purchase price, the name of any such agent, broker, dealer or
underwriter and applicable discounts, concessions, allowances, discounts or
commissions and any other required information with respect to a particular
offer of the Shares will be set forth in an accompanying Prospectus Supplement.
The aggregate net proceeds to the Selling Stockholders from the sale of the
Shares will be the purchase price of such Shares less any underwriting
discounts, concessions or commissions. This Prospectus also may be used, with
the Company's prior written consent, by donees and pledgees of the Selling
Stockholders.
In connection with distributions of the Shares or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with such transactions, broker-dealers or
other financial institutions may engage in short sales of the Company's Common
Stock in the course of hedging the positions they assume with Selling
Stockholders. The Selling Stockholders also may take a short position in shares
of the Company's Common Stock and redeliver the Shares to close out such short
positions.
The Selling Stockholders and any brokers, dealers, agents or underwriters
that participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
discounts, concessions and commissions received by such brokers, dealers, agents
or underwriters and any profit on the resale of the Shares purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
The Selling Stockholders may agree to indemnify any broker-dealer that
participates in transactions involving the sale of the Shares against certain
liabilities arising under the Securities Act.
Each of the Selling Stockholders is acting independently of the Company in
making decisions with respect to the timing, price, manner and size of each
sale. No underwriter, broker, dealer or agent has been engaged by the Company in
connection with the distribution of the Shares. There is no assurance,
therefore, that the Selling Stockholders will sell any or all of the Shares. The
Company has agreed to make copies of this Prospectus available to the Selling
Stockholders in connection with the offer or sale of the Shares and has informed
them of the need to deliver copies of this Prospectus to purchasers at or prior
to the time of any sale of the Shares offered hereby.
The Shares covered by this Prospectus may qualify for sale pursuant to
Section 4(1) of the Securities Act or Rule 144 promulgated thereunder, and may
be sold thereunder rather than pursuant to this Prospectus. The Selling
Stockholders may transfer, devise or gift the Shares by other means not
described herein.
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders. The Company will pay all of the expenses incident to
the registration of the Shares, other than underwriting
13
<PAGE>
discounts and selling concessions or commissions, if any, and fees and expenses
of counsel for the Selling Stockholders, if any. Pursuant to the agreements
executed in connection with the Company's affiliations with its Affiliated
Practices in Canada, the Company agreed to file the Registration Statement of
which this Prospectus constitutes a part. The Company intends to de-register any
of the Shares not sold by the Selling Stockholers.
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.
EXPERTS
The financial statements of Apple Orthodontix, Inc. as of December 31, 1997
and for the period from inception, July 15, 1996, through December 31, 1996
included in the Company 10-K and incorporated herein by reference have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in giving said report.
14
<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 THE SELLING STOCKHOLDERS OR ANY BROKER, DEALER OR AGENT. 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
----
Additional Information............... 2
Incorporation of Certain Documents
by Reference....................... 2
Prospectus Summary................... 3
Risk Factors......................... 6
The Company.......................... 10
Recent Developments.................. 11
Use of Proceeds...................... 11
Selling Stockholders................. 12
Plan of Distribution................. 13
Legal Matters........................ 14
Experts.............................. 14
1,340,087 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
SEPTEMBER , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of securities being registered, other than discounts,
concessions and brokerage commissions. All amounts are estimates, except the SEC
Registration Fee.
SEC Registration Fee................. $ 1,570
Legal Fees and Expenses.............. 10,000
Accounting Fees and Expenses......... 3,000
Miscellaneous........................ 75,430
---------
Total........................... $ 90,000
=========
ITEM 15. 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 such person 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 attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person 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
such person's 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 such person
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 such person's 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 such
person 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 attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person 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 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 present or
former director or officer 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, such
II-1
<PAGE>
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person 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 present or former director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct set forth in subsections (a) and (b). Such determination
shall be made with respect to a person who is a director or officer at the time
of such determination, (1) by the board of directors by a majority vote of the
directors who were not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors, even though less
than a quorum, or (3) 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 (4) 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 such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the operator 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 such person's 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 such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person 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.
RESTATED 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 adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such repeal or modification.
II-2
<PAGE>
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.
INSURANCE
The Company maintains liability insurance for the benefit of its directors
and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
5.1 -- Opinion of Jackson Walker L.L.P.
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)
(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.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15, 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 of
1933 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<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 SEPTEMBER 14, 1998.
APPLE ORTHODONTIX, INC.
By: /s/ A. STONE DOUGLASS
---------------------
A. STONE DOUGLASS
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS W. DANIEL COOK
AND CHARLES C. SOMMER AND EACH OF THEM, ANY OF WHOM MAY ACT WITHOUT THE JOINDER
OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION
STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER THE SECURITIES
ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND ALL OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS FULLY AND FOR ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR SUBSTITUTE OR
SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
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 SEPTEMBER 14, 1998.
SIGNATURES TITLE
---------- -----
/s/ A. STONE DOUGLASS
- ---------------------------------------- Chief Executive Officer and Director
A. Stone Douglass (Principal Executive Officer)
/s/ JAMES E. BOBBITT
- ---------------------------------------- Vice President and Chief Financial
James E. Bobbitt Officer (Principal Financial and
Accounting Officer)
/s/ ROBERT L. BREWTON
- ---------------------------------------- Director
ROBERT L. BREWTON
/s/ W. DANIEL COOK
- ---------------------------------------- Director
W. DANIEL COOK
/s/ ROD L. CROSBY, JR.
- ---------------------------------------- Director
ROD L. CROSBY, JR.
/s/ RICHARD J. MARXEN
- ---------------------------------------- Director
RICHARD J. MARXEN
/s/ WILLIAM W. SHERRILL
- ---------------------------------------- Director
WILLIAM W. SHERRILL
/s/ JOHN G. VONDRAK, D.D.S
- ---------------------------------------- Director
JOHN G. VONDRAK
/s/ CLYDE C. WADDELL, JR.
- ---------------------------------------- Director
CLYDE C. WADDELL, JR.
II-5
EXHIBIT 5.1
[JACKSON WALKER L.L.P. LETTERHEAD]
September 11, 1998
Apple Orthodontix, Inc.
2777 Allen Parkway, Suite 700
Houston, Texas 77019
Re: Registration Statement on Form S-3 of Apple Orthodontix, Inc. (the
"Registration Statement")
Ladies and 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
1,340,087 shares of Class A common stock, par value $.001 per share, of the
Company (the "Shares") by certain "Selling Stockholders" (as defined in the
Registration Statement). The Company's Registration Statement covering the sale
of the Shares will be filed under the Act with the Securities and Exchange
Commission (the "Commission") on or about September 14, 1998.
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
render the opinions expressed herein. We have assumed that all signatures on all
documents submitted to us are genuine, that all documents submitted to us as
originals are accurate and complete, and that all documents submitted to us as
copies are true, correct and complete copies of the originals thereof.
Based solely upon the foregoing, subject to the comments and exceptions
herein stated, and limited in all respects to the laws of the State of Texas,
the General Corporation Law of the State of Delaware and the federal laws of the
United States of America, we are of the opinion that the Shares have been
validly and legally issued, and are fully paid and nonassessable.
You should be aware that we are not admitted to practice law in the State
of Delaware. Accordingly, any opinion herein as to the laws of the State of
Delaware is based solely upon the latest generally available compilation of the
statutes and case law of such state.
<PAGE>
We hereby consent to the filing of this opinion with the Commission 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 hereby
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 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
Registration Statement No. 333- .
ARTHUR ANDERSEN LLP
September 14, 1998
