As filed with the Securities and Exchange Commission on May , 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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OMEGA ORTHODONTICS, INC.
(Name of Small Business Issuer in Its Charter)
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Delaware 8741 95-4596853
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
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3621 Silver Spur Lane
Acton, California 93510
(805) 269-2841
(805) 269-2854 (fax)
(Address and Telephone Number
of Principal Executive Offices)
ROBERT J. SCHULHOF
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
(805) 269-2841
(805) 269-2854 (fax)
(Name, Address and Telephone Number
of Agent for Service)
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Copies to:
DAVID A. GARBUS, ESQUIRE LAWRENCE B. FISHER, ESQUIRE
Robinson & Cole LLP Orrick, Herrington & Sutcliffe LLP
One Boston Place 666 Fifth Avenue
Boston, Massachusetts 02108 New York, NY 10103
(617) 557-5900 (212) 506-5000
(617) 557-5999 (fax) (212) 506-5151 (fax)
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Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
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. [ ]
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 Maximum Maximum
Title of Each Class of Amount to Be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered (1) Per Security (2) Price (2) Registration Fee
- -------------------------------------------- ----------------- ------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share (3) 2,070,000 $ 6.00 $12,420,000 $3,763.64
Redeemable Common Stock Purchase
Warrants (4) 2,070,000 $ 0.10 $ 207,000 $ 62.73
Common Stock, par value $.01 per share,
issuable on exercise of Redeemable Common
Stock Purchase Warrants 2,070,000 $ 6.60 $13,662,000 $4,140.00
Representative's Warrants (5) 180,000 $0.0001 $ 18 $ --
Common Stock, par value $.01 per share,
issuable upon exercise of Representative's
Warrants 180,000 $ 7.20 $ 1,296,000 $ 392.73
Redeemable Common Stock Purchase Warrants
issuable upon exercise of Representative's
Warrants 180,000 $ 0.12 $ 21,600 $ 6.55
Common Stock, par value $.01 per share,
issuable upon exercise of Redeemable
Common Stock Purchase Warrants issuable
upon exercise of Representative's Warrants 180,000 $ 6.60 $ 1,188,000 $ 360.00
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Totals $28,794,618 $8,725.65
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(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the antidilution provisions of
the Redeemable Common Stock Purchase Warrants (the "Warrants"), the
Representative's Warrants and the Warrants underlying the Representative's
Warrants.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) Includes 270,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(4) Includes 270,000 Warrants which the Underwriters have the option to purchase
to cover over-allotments, if any.
(5) In connection with the Registrant's sale of the Securities offered hereby,
the Registrant is granting to the Representative warrants (the
"Representative's Warrants") to purchase 180,000 shares of Common Stock
and/or 180,000 Warrants.
---------------
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 Section 8(a), may
determine.
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SUBJECT TO COMPLETION--DATED MAY , 1997
PROSPECTUS
OMEGA ORTHODONTICS, Inc.
1,800,000 Shares of Common Stock and
1,800,000 Redeemable Common Stock Purchase Warrants
This Prospectus relates to the offering (the "Offering") of 1,800,000
shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), and 1,800,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") of Omega Orthodontics, Inc., a Delaware corporation (the "Company").
The Shares and Warrants are sometimes hereinafter collectively referred to as
the "Securities." Until the completion of this Offering, the Shares and the
Warrants may only be purchased together on the basis of one Share and one
Warrant, but will be transferable separately immediately following completion of
this Offering. Each Warrant entitles the registered holder thereof to purchase
one share of Common Stock at an initial exercise price of $ per share [110%
of the initial public offering price per share of Common Stock], at any time
during the period commencing , 1997 [six months after the date of this
Prospectus] and terminating , 2002 [five (5) years from the date of this
Prospectus.] The Warrant exercise price is subject to adjustment under certain
circumstances. Commencing , 1998 [eighteen (18) months after the date of
this Prospectus], the Company may redeem the Warrants, in whole but not in part,
at $.10 per Warrant on thirty (30) days' prior written notice to the
warrantholders, provided that the average closing bid price of the Common Stock
as reported on the Nasdaq SmallCap Market ("Nasdaq") equals or exceeds $ per
share [200% of the initial public offering price per share of the Common Stock]
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. See "Description Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that such a market will
develop after the completion of this Offering or, if developed, that it will be
sustained. It is currently anticipated that the initial public offering prices
of the Common Stock and the Warrants will be $6.00 per share and $.10 per
Warrant, respectively. For information regarding the factors considered in
determining the initial public offering prices of the Securities and the terms
of the Warrants, see "Risk Factors" and "Underwriting." It is anticipated that
upon consummation of the Offering the Shares and the Warrants will be included
for quotation on Nasdaq and listing on the Boston Stock Exchange (the "BSE") and
will trade separately immediately after the Offering under the symbols "OMGA"
and "OMGAW," respectively, with respect to Nasdaq and "OMA" and "OMAW,"
respectively, with respect to the BSE.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE AND "DILUTION."
----------------
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.
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
----------- --------------- -------------
Per Share ......... $ $ $
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Per Warrant ...... $ $ $
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Total (3) ......... $ $ $
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(1) Does not include additional compensation payable to National Securities
Corporation, the representative (the "Representative") of the several
underwriters (the "Underwriters"), in the form of a non-accountable expense
allowance. In addition, see "Underwriting" for information concerning
indemnification and contribution arrangements with the Underwriters and
other compensation payable to the Representative.
(2) Before deducting estimated expenses of $ payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an aggregate of
270,000 additional shares of Common Stock and/or 270,000 additional Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any (the "Over-allotment Option"). If such
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment at the
offices of National Securities Corporation, Seattle, Washington on or about
, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
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.
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--------------------------
The Company intends to furnish its security holders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three fiscal quarters of
each fiscal year containing unaudited interim financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS, INCLUDING PURCHASES OF THE COMMON STOCK AND/OR WARRANTS TO STABILIZE
THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE COMMON STOCK AND/OR WARRANTS
TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE UNDERWRITERS IN THE
COMMON STOCK AND/OR WARRANTS, RESPECTIVELY, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
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. Upon consummation of this Offering, Omega
Orthodontics, Inc. will acquire (the "Acquisitions") the equity interests in the
management services organizations that hold certain assets of and are associated
with seven orthodontic practices (except in the case of one sole proprietorship
where it will acquire certain assets of such proprietorship) (such practices are
referred to collectively as the "Initial Orthodontic Affiliates" and such
management services organizations are referred to collectively as the "Initial
MSOs"). Unless otherwise indicated, all references herein to "Omega" shall mean
Omega Orthodontics, Inc. prior to the consummation of the Acquisitions, and
references herein to the "Company" shall mean Omega after consummation of the
Acquisitions. Except as otherwise indicated, the information in this Prospectus
assumes that (i) the Over-allotment Option is not exercised and (ii) the
Warrants and the warrants to purchase 180,000 shares of Common Stock and/or
180,000 Warrants issued to the Representative in connection with this Offering
(the "Representative's Warrants") are not exercised. See "Underwriting."
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in those forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The Company
The Company provides management and marketing services to orthodontic
practices in the United States. Since its inception in August 1996, Omega has
provided these services on a fee for services basis to 10 orthodontic practices,
including four of the Initial Orthodontic Affiliates. Following this Offering,
the Company intends to offer its services primarily under an affiliate
relationship whereby it purchases the equity interests in the management
services organization (individually, an "MSO" and collectively with the Initial
MSOs, the "MSOs") that holds certain assets of and is associated with an
orthodontic practice and enters into a long term management services agreement
(the "Management Services Agreement") with the practice (individually, an
"Orthodontic Affiliate" and collectively with the Initial Orthodontic
Affiliates, the "Orthodontic Affiliates") of the selling orthodontist (the
"Affiliated Orthodontist"). The Company has signed affiliation agreements (the
"Affiliation Agreement") with the seven Initial Orthodontic Affiliates and
letters of intent with four additional practices.
Upon consummation of the Acquisitions, the Company will enter into
Management Services Agreements with the Initial Orthodontic Affiliates. Pursuant
to these Management Services Agreements, the Company will provide facilities,
support staff and supplies to the Initial Orthodontic Affiliates and will
institute a program of systems, methods and procedures the Company refers to as
the Omega Exceptional Practice Model (the "Model"). The Model is designed to
increase the Orthodontic Affiliate's profitability by focusing on and improving
customer service while simultaneously reducing costs and increasing operating
efficiency.
Omega seeks to affiliate with established orthodontic practices that Omega
believes have the potential for significant growth utilizing the Model. Omega
considers financial and operational factors that include the practice's gross
income, cost structure, existing treatment contracts, fee schedules, referral
rates and sources, health maintenance organization relationships, case starts,
appointments per day and average treatment times. Omega also evaluates
demographic factors that include the practice's location with respect to the
average income levels and concentrations of families with children in the area.
The annual market for orthodontic treatment and services is estimated at
$3.6 billion. Based on U.S. census data that indicates that the number of
children between the ages of five and 19 will increase by approximately 10.4
million by the year 2000, the Company expects that the growth in this population
group will result in increased demand for orthodontic services. The orthodontic
marketplace is highly fragmented and consists of approximately 9,000 practicing
orthodontists, a significant majority of whom are sole practitioners. Omega
believes that many orthodontists in practice today have excess patient capacity
and lack the training and resources in management and marketing techniques to
fill that capacity effectively. It is Omega's belief that less than two percent
of the orthodontic practices in the United States are presently managed by
independent, professional management services organizations and that an
opportunity exists for the Company to market and sell its services to the
orthodontic practices that are not currently managed by such organizations.
3
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The Company's strategy is to (i) enter into Affiliation Agreements and
Management Services Agreements with established orthodontic practices that meet
the Company's criteria and (ii) achieve operating efficiencies and increased
profitability at each such practice through the implementation of the Model. The
Model is designed to permit the practice to meet or exceed patient expectations
by (a) offering flexible payment plans, (b) scheduling convenient appointment
times, (c) ensuring that treatment is delivered on time, (d) updating patients
and their referring dentists regularly on treatment programs and (e) training
staff to anticipate and address patient needs.
The Company will focus its initial marketing efforts on the practices of
the approximately 4,500 orthodontists over the age of 47 who the Company
believes are planning their transition to retirement. The Company believes it
can generally place a higher value on a mature practice than other potential
buyers, many of whom are recent orthodontic graduates. The Company believes that
this higher valuation, combined with consideration in the form of a combination
of cash, notes and the Company's Common Stock and the opportunity to delegate
managerial and marketing responsibilities to an experienced management team,
generally makes the Company an attractive alternative for orthodontists planning
their transition to retirement. The Company will also target younger
orthodontists who may want to merge their practices with the practice of an
orthodontist in transition or take over such a practice.
The Offering
Securities Offered ............... 1,800,000 shares of Common Stock and
1,800,000 Warrants. The Shares and the
Warrants will be separately transferable
immediately following completion of this
Offering. See "Description of Securities."
Terms of Warrants .................. Each Warrant entitles the registered
holder thereof to purchase, at any time
commencing , 1997 [six (6) months
after the date of this Prospectus] until
, 2002 [five (5) years after the
date of this Prospectus], one share of
Common Stock at an initial exercise price
of $ per share [110% of the initial
public offering price per share of Common
Stock], subject to adjustment. Commencing
, 1998 [eighteen (18) months after
the date of this Prospectus], the Warrants
are subject to redemption by the Company,
in whole but not in part, at $.10 per
Warrant on thirty (30) days' prior written
notice to the warrantholders, provided
that the average closing bid price of the
Common Stock as reported on Nasdaq equals
or exceeds $ per share [200% of the
initial public offering price], subject to
adjustment, for any twenty (20) trading
days within a period of thirty (30)
consecutive trading days ending on the
fifth trading day prior to the date of the
notice of redemption. See "Description of
Securities--Warrants."
Common Stock Outstanding
Prior to the Offering(1)(2) ...... 1,685,000 shares of Common Stock
Securities to Be Outstanding
after the Offering (1) ............ 3,800,655 shares of Common Stock and
1,800,000 Warrants
Use of Proceeds .................. To repay the promissory notes issued in
connection with Omega's bridge financing
(the "Bridge Notes"); to finance in part
the Acquisitions; to finance in part
future affiliations with additional
Orthodontic Affiliates;to develop or
acquire certain software for use by
Orthodontic Affiliates; and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Risk Factors ..................... An investment in the shares of the Common
Stock and the Warrants offered hereby
involves a high degree of risk and
immediate and substantial dilution and
should be considered only by persons who
can afford the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Proposed Nasdaq SmallCap
Symbols:
Common Stock ..................... "OMGA"
Warrants ........................ "OMGAW"
Proposed BSE Symbols:
Common Stock ..................... "OMA"
Warrants ........................ "OMAW"
4
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(1) Does not include (i) 100,000 shares of Common Stock reserved for issuance
pursuant to grants that may be made under the Company's Incentive Stock Plan
(the "Stock Option Plan"), (ii) 350,000 shares of Common Stock reserved for
issuance upon exercise of options granted to three officers of the Company
under the Stock Option Plan at an exercise price equal to the initial public
offering price of the Common Stock and (iii) 83,333 shares of Common Stock
(assuming an initial public offering price per share of $6.00) reserved for
issuance upon exercise of an option to be granted upon consummation of the
Acquisitions to an Affiliated Orthodontist at an exercise price equal to the
initial public offering price of the Common Stock. See "Management--
Incentive Stock Plan."
(2) Does not include an aggregate of 315,655 shares of Common Stock (assuming an
initial public offering price per share of $6.00) which the Company has
agreed to issue to seven Affiliated Orthodontists as partial consideration
for the Acquisitions (including 55,595 shares to be issued as partial
consideration for acquiring certain assets of the practice of one of the
directors of the Company). See "Certain Transactions."
Summary Financial Data
The following summary financial data should be read in conjunction with the
financial statements and pro forma financial statements of the Company and
related notes thereto appearing elsewhere in this Prospectus.
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Pro Forma (1)
August 30, 1996 (Inception) Year Ended
to December 31, 1996 December 31, 1996
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Statement of Operations Data:
Practice revenue ................................................ $ -- $4,615,677
Orthodontists' compensation .................................... -- 1,281,735
----------- -----------
Net management revenue .......................................... -- 3,333,942
Direct practice expenses ....................................... -- 2,588,761
----------- -----------
Income (loss) from operations before management expenses ...... -- 745,181
Management expenses ............................................. 248,018 650,195 (2)
----------- -----------
Income (loss) from operations ................................. (248,018) 94,986
Other income (expense) .......................................... 15,906 (1,635)
----------- -----------
Income (loss) before income taxes .............................. (232,112) 93,351
Provision for income taxes ..................................... -- 76,782
----------- -----------
Net income (loss) ............................................. $ (232,112) $ 16,569
=========== ===========
Pro forma net income per share (3) .............................. $ .01
===========
Shares used to compute pro forma net income per share (3) ...... 2,146,488
</TABLE>
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December 31, 1996
-----------------------------------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted (1) (4)
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Balance Sheet Data:
Working capital (deficit) ......... $(368,032) $(2,795,981) $ 5,756,619
Total assets ........................ 490,923 6,733,578 12,312,714
Total liabilities .................. 711,385 5,901,410 2,927,946
Stockholders' equity (deficit) ...... (220,462) 832,168 9,384,768
</TABLE>
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(1) The pro forma statement of operations data for the fiscal year ended
December 31, 1996 is presented as if the Acquisitions had occurred on
January 1, 1996. The pro forma balance sheet data is presented as if the
Acquisitions had occurred on December 31, 1996 and certain subsequent
events had occurred prior to December 31, 1996. See Note 5 to the Unaudited
Pro Forma Balance Sheet Adjustments.
(2) Includes $121,485 of goodwill amortization. See Note 6 to the Unaudited Pro
Forma Statement of Operations Adjustments.
(3) See Note 12 to the Unaudited Pro Forma Statement of Operations Adjustments.
(4) Adjusted to give effect to the sale of the Securities offered hereby (at the
assumed initial public offering price of $6.00 per Share and $.10 per
Warrant) and the initial application of the net proceeds therefrom. See "Use
of Proceeds."
5
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RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Securities offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
Limited Operating History; Early Stage Company; History of Losses; No
Assurance of Profitability. Omega was incorporated in August 1996 and has a
limited operating history upon which prospective investors can judge its
performance and prospects. Omega is at an early stage and is subject to all of
the business risks associated with a new enterprise, including constraints on
its financial and personnel resources, lack of established business
relationships and uncertainties regarding affiliations and future revenues.
Omega has generated limited revenues to date, and will not generate any
meaningful revenues until after it consummates a significant number of
affiliations with orthodontic practices. At December 31, 1996, Omega had an
accumulated deficit since inception of $232,112 and a working capital deficiency
of $368,032. The Company anticipates that it will incur operating losses in the
six month period ending June 30, 1997 in connection with a non-recurring charge
for compensation paid to certain consultants and may incur operating losses for
the foreseeable future thereafter. There can be no assurances as to whether the
Company will ever be profitable. See "--Expected Operating Loss in Six Month
Period Ending June 30, 1997" and "Management's Plan of Operation."
Expected Operating Loss in Six Month Period Ending June 30, 1997. The
Company expects to show a significant loss from operations for the six month
period ending June 30, 1997 due primarily to compensation paid to two
consultants. On April 28, 1997, each of Dr. Glovsky, the Chairman of the Board
of the Company, and The Mayflower Group, Ltd., a private banking firm
("Mayflower," and together with Dr. Glovsky, the "Consultants"), received
225,000 shares of Common Stock for consulting services to Omega and will receive
approximately $421,000 of cash payments over three years beginning in January
1998. See "Certain Transactions." The Company will recognize a non-recurring
compensation expense reflecting delivery of such shares and these payment
obligations in April 1997 of approximately $2.2 million. This expense is
comprised of approximately $1.4 million attributable to the Common Stock and an
aggregate of approximately $842,000 attributable to the payment obligation. See
"Management's Plan of Operation--Plan of Operation."
Going Concern Report. Omega's independent auditors have stated in their
report on Omega's financial statements as of December 31, 1996 that Omega's
accumulated deficit and working capital deficiency raise substantial doubt,
absent successful completion of this Offering, about Omega's ability to continue
as a going concern. See "Management's Plan of Operation" and "Financial
Statements."
Risks Associated with Expansion. Omega has signed Affiliation Agreements
with the seven Initial Orthodontic Affiliates and expects to consummate the
Acquisitions concurrently with the closing of this Offering. Omega has also
executed non-binding letters of intent to affiliate with four additional
orthodontic practices. At the end of the 12 months following this Offering, the
Company intends to manage approximately 31 Orthodontic Affiliates. The success
of the Company's expansion strategy will depend on a number of factors,
including (i) the Company's ability to attract orthodontists to affiliate with
the Company, the availability of suitable markets and the Company's ability to
obtain good locations within those markets; (ii) the Company's ability to locate
existing practices for affiliation, affiliate with such practices on favorable
terms and successfully integrate the affiliated operations into the Company's
existing operations; (iii) the availability of adequate financing to affiliate
with orthodontic practices; and (iv) regulatory constraints. A shortage of
available orthodontists with the skills and experience required by the Company
would have a material adverse effect on the Company's expansion plans. 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 or that the Company
will be able to manage effectively and enhance the profitability of its
Orthodontic Affiliates. See "Business--Business Strategy."
Possible Need for Additional Financing. The Company's expansion strategy
will require substantial capital resources. Although the Company believes that
the net proceeds of this Offering, together with cash from operations, will be
sufficient to satisfy its cash requirements for at least 12 months following the
date of this Prospectus, there can be no assurance that additional funds will
not be needed. The Company expects that its capital needs over the
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<PAGE>
next several years will substantially exceed capital generated from operations
and the net proceeds of this Offering. To finance its future capital needs, the
Company plans to issue, from time to time, additional debt or equity securities,
including notes and Common Stock in connection with its planned affiliations.
There can be no assurance that the Company will be able to raise additional
funds when needed on satisfactory terms to the Company or at all. If additional
funds are raised through the issuance of equity securities, dilution to the
Company's stockholders may result, and if additional funds are raised through
the incurrence of debt, the Company likely would become subject to financial
covenants and restrictions on its operations and finances. If adequate financing
is not available when needed or on terms acceptable to the Company, the
Company's expansion strategy may be materially adversely affected. See
"Management's Plan of Operation."
Additional Debt to Finance Affiliations. In connection with the
Acquisitions, the Company expects to issue five year, 8.5% notes aggregating
approximately $794,000 to five Affiliated Orthodontists. During the 12 months
following the consummation of the Acquisitions, the Company intends to affiliate
with and manage an additional 24 Orthodontic Affiliates. In connection with such
additional affiliations, the Company expects that it may issue notes aggregating
approximately $4.8 million to new Affiliated Orthodontists. The Company believes
that it will be able to issue these notes on substantially similar terms to the
terms of the notes to be issued in connection with the Acquisitions. There can
be no assurance, however, that the Company will be able to issue notes in
connection with future affiliations in amounts and on terms acceptable to the
Company. If the Company is unable to issue notes in connection with future
affiliations in amounts and on terms acceptable to the Company, the Company's
expansion strategy may be materially adversely affected. See "Management's Plan
of Operation."
Dependence on Orthodontic Affiliates. The Company will receive fees for
management services provided to Orthodontic Affiliates under Management Services
Agreements, but will not employ orthodontists or control the practices of its
Orthodontic Affiliates. The Company's revenue is dependent on revenue generated
by the Company's Orthodontic Affiliates and, therefore, the performance and
professional reputation of Affiliated Orthodontists and Orthodontic Affiliates
are essential to the Company's success. The Management Services Agreements with
the Orthodontic Affiliates are for terms of 20 years and are renewable at the
election of the Company for two additional 10 year periods. The Management
Services Agreements may only be terminated by either party for "cause," which
includes a material default by or bankruptcy of the other party. Any material
loss of revenue by the Orthodontic Affiliates would have a material adverse
effect on the Company. See "Business--Agreements with Affiliated Orthodontists."
Professional Liability. The Orthodontic Affiliates provide orthodontic
services to the public and are exposed to the risk of professional liability and
other claims. The Company does not control the practice of orthodontics by its
Orthodontic Affiliates or the compliance with regulatory and other requirements
directly applicable to the orthodontists and their practices. The Company might
nevertheless be held liable for negligence on their part.
The Management Services Agreements will require the Orthodontic Affiliates
to maintain, at their expense, professional liability insurance for themselves
and each orthodontist employed by or otherwise providing orthodontic services
for the Orthodontic Affiliate in the minimum amount of $500,000 per occurrence
and $1,000,000 in the aggregate. In addition, each Orthodontic Affiliate will
undertake to comply with all applicable regulations and requirements, and the
Company will be indemnified under the Management Services Agreements for claims
against the Company arising in connection with actions by the Orthodontic
Affiliates. The Company has applied for general liability insurance for itself
and will require that it be named as an additional insured party on the
professional liability insurance policies of the Orthodontic Affiliates pursuant
to the Management Services Agreement. The Company does not maintain professional
liability insurance for itself.
There can be no assurance that the Company, its employees, the Orthodontic
Affiliates or the licensed orthodontists employed by or associated with the
Orthodontic Affiliate will not be subject to claims in amounts that exceed the
coverage limits or that such coverage will be available when needed. Further,
there can be no assurance that professional liability or other insurance will
continue to be available to the Orthodontic Affiliates in the future at adequate
levels or at an acceptable cost. A successful claim against the Company or an
Orthodontic Affiliate in excess of the relevant insurance coverage could have a
material adverse effect upon the Company. Claims against the Company, regardless
of the merits or eventual outcomes, may also have a material adverse effect on
the Company.
Government Regulation. Federal and state laws extensively regulate the
relationships among providers of health care services, physicians and other
clinicians. These laws include federal fraud and abuse provisions that
7
<PAGE>
prohibit the solicitation, receipt, payment, or offering of any direct or
indirect remuneration for the referral of patients for which reimbursement is
made under any federal or state funded health care program or for the
recommending, leasing, arranging, ordering or providing of services covered by
such programs. States have similar laws that apply to patients covered by
private and government programs. Federal fraud and abuse laws also impose
restrictions on physicians' referrals for designated health services covered
under a federal or state funded health care program to entities with which they
have financial relationships. Various states have adopted similar laws that
cover patients in private programs as well as government programs. There can be
no assurance that the federal and state governments will not consider additional
prohibitions on physician ownership, directly or indirectly, of facilities to
which they refer patients, which could adversely affect the Company. Violations
of these laws may result in substantial civil or criminal penalties for
individuals or entities, including large civil money penalties and exclusion
from participation in federal or state health care programs. See
"Business--Government Regulation."
Moreover, the laws of many states prohibit physicians from sharing
professional fees, or "splitting fees," with anyone other than a member of the
same profession. These laws and their interpretations vary from state to state
and are enforced by the courts and by regulatory authorities with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with Orthodontic Affiliates, which could have an adverse effect on
the Company. Although the Company believes its operations as currently expected
to be conducted are in material compliance with existing applicable laws, there
can be no assurance that review of the Company's business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's existing operations
or its expansion.
State Laws Regarding Prohibition of Corporate Practice of Orthodontics. The
Orthodontic Affiliates are expected to be formed as professional corporations
owned by one or more orthodontists licensed to practice dentistry under
applicable state law in states that prohibit the corporate practice of
dentistry. Corporations such as the Company are not permitted under certain
state laws to practice dentistry or exercise control over the dental judgments
or decisions of practitioners. Corporate practice of dentistry laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. The Company anticipates that it
will perform only non-orthodontic administrative services, will not represent to
the public that it offers orthodontic services and will not exercise influence
or control over the practice of orthodontics by the practitioners with whom it
contracts. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with Orthodontic Affiliates in order to comply with the dental
practice laws, which could have an adverse effect on the Company. Although the
Company believes its operations as currently expected to be conducted will be in
material compliance with existing applicable laws, there can be no assurance
that the Company's structure will not be challenged as constituting the
unlicensed practice of dentistry or that the enforceability of the agreements
underlying this structure will not be limited. If such a challenge were made
successfully in any state, the Company could be subject to civil and criminal
penalties under such state's laws and could be required to restructure its
contractual arrangements in that state. Such results or the inability to
restructure its contractual arrangements could have a material adverse effect
upon the Company.
Dependence on Key Personnel. The success of the Company is dependent upon
the continued services of the Company's senior management, particularly upon its
Chief Executive Officer and President, Mr. Robert J. Schulhof, and its Director
of Affiliate Programs, Dr. Dean C. Bellavia. Both Mr. Schulhof and Dr. Bellavia
have entered into three year employment agreements with the Company, but there
can be no assurance that either of them will continue in the employ of the
Company for the full term of his employment agreement. The Company has a
"key-man" life insurance policy on the life of Mr. Schulhof providing benefits
to the Company of $1 million upon the death of Mr. Schulhof. The loss of the
services of Mr. Schulhof or Dr. Bellavia, or the inability to attract other
qualified employees, could have a material adverse effect on the Company. See
"Management--Employment Agreements."
Competition. The business of providing orthodontic services is highly
competitive in each market in which the Company intends to operate. Each of the
Orthodontic Affiliates faces competition from other orthodontists or general
dentists in the communities served, many of whom may have more established
practices in the market or greater financial and other resources than the
Orthodontic Affiliate. At this time, the Company believes there are several
other companies actively involved in consolidating and managing orthodontic
practices throughout the United States. These companies have greater financial,
marketing and other resources than the Company. In addition, there are companies
pursuing similar strategies with respect to dental specialties, including
orthodontics, and
8
<PAGE>
additional companies with similar objectives may enter the Company's markets and
compete with the Company. Many of the Company's competitors may have
substantially greater financial and other resources than the Company. There can
no be assurance that the Company will be able to compete effectively. See
"Business--Competition."
Health Care Reform. Although Congress failed to pass comprehensive health
care reform legislation in 1996, the Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
and payment systems and may in the future propose and adopt legislation
effecting fundamental changes in the health care delivery system. The Company
cannot predict the ultimate timing, scope or effect of any legislation
concerning health care reform. Any proposed federal legislation, if adopted,
could result in significant changes in the availability, delivery, pricing and
payment for health care services and products. Various states agencies also have
undertaken or are considering significant health care reform initiatives.
Although it is not possible to predict whether any health care reform
legislation will be adopted or, if adopted, the exact manner and the extent to
which the Company will be affected, it is likely that the Company will be
affected in some fashion, and there can be no assurance that any health care
reform legislature, if and when adopted, will not have a material adverse effect
on the Company.
Dependence on Third Party Reimbursement. A significant portion of the
revenue of the Orthodontic Affiliates on which the Company's revenue will depend
comes from commercial dental insurance and preferred provider plans. These
providers and programs are regulated at the state or federal level. There are
increasing and significant public sector pressures to contain health care costs
and to restrict reimbursement rates for dental services. Changes in the level of
support by federal and state governments of health care services, the methods by
which such services may be delivered, and the prices of such services may all
have a material impact on revenue of the Orthodontic Affiliates, which in turn
could have a material adverse effect on the Company.
Certain Anti-takeover Provisions; Preferred Stock. Certain provisions of
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and By-Laws and Delaware law could have the effect of delaying
or preventing a change in the control of the Company, even if a change in
control were in the stockholders' interest. The Company's Certificate of
Incorporation allows the Board to determine the terms of the preferred stock
which may be issued by the Company without approval of the holders of the Common
Stock. Such preferred stock could have voting and conversion rights that
adversely affect the voting power of the holders of Common Stock, or could
result in one or more classes of outstanding securities that would have
dividend, liquidation or other rights superior to those of the Common Stock.
Issuance of such preferred stock may have an adverse effect on the then
prevailing market price of the Common Stock and Warrants and could enable the
Board to prevent changes in the management and control of the Company.
Additionally, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law which prohibits the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Section 203 could have the effect of delaying or preventing
a change of control of the Company. See "Description of
Securities--Anti-takeover Provisions."
Shares Eligible for Future Sale. Of the 3,800,655 shares of Common Stock
and 1,800,000 Warrants to be outstanding upon completion of this Offering, the
1,800,000 shares of Common Stock and the 1,800,000 Warrants (2,070,000 shares of
Common Stock and 2,070,000 Warrants if the Over-allotment Option is exercised in
full) will be immediately freely tradeable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any
securities purchased by an "affiliate" of the Company (as that term is defined
in the Securities Act), which securities will be subject to the resale
limitations of Rule 144 under the Securities Act. All of the remaining 2,000,655
shares of Common Stock outstanding are "restricted securities," as that term is
defined in Rule 144 under the Securities Act and may, under certain
circumstances, be sold without registration under the Securities Act. The sale,
or availability for sale, of substantial amounts of Common Stock in the public
market subsequent to this Offering pursuant to Rule 144 or otherwise could
materially adversely affect the market price of the Common Stock and could
impair the Company's ability to raise additional capital through the sale of its
equity securities or debt financing.
Notwithstanding the foregoing, each officer and director of Omega and all
holders of the shares of Common Stock and options to acquire shares of Common
Stock have agreed not to, directly or indirectly, offer, sell, transfer, pledge,
assign, hypothecate or otherwise encumber or dispose of any of the Company's
securities, whether or not presently owned, for a period of 24 months after the
date of this Prospectus without the prior written consent of
9
<PAGE>
the Company and the Representative. After such 24 month period, all 2,000,655 of
such shares of Common Stock may be sold in accordance with Rule 144.
Concentration of Ownership. Upon consummation of this Offering, directors
and executive officers of the Company will own beneficially in the aggregate
approximately 35.8% of the outstanding shares of Common Stock. Accordingly, the
Company's executive officers and directors will have the ability to elect a
majority of the Company's directors and otherwise control the Company. See
"Principal Stockholders."
Immediate Substantial Dilution; Disparity of Consideration. The purchasers
of the shares of Common Stock in this Offering will experience immediate and
substantial dilution in the net tangible book value of the shares of Common
Stock from the initial public offering price in the amount of $4.83 per share,
or approximately 81% per share. Additional dilution to future net tangible book
value per share may occur upon the exercise of the Warrants, the
Representative's Warrants and options that are outstanding or to be issued under
the Company's Incentive Stock Plan. The current stockholders of Omega, including
the directors and persons or entities affiliated with them, acquired their
shares of Common Stock for nominal consideration. As a result, new investors
will bear substantially all of the risks inherent in an investment in the
Company. See "Capitalization," "Dilution" and "Certain Transactions."
Absence of Dividends. Omega has never declared or paid dividends on its
Common Stock and does not anticipate paying any dividends in the foreseeable
future. The Company expects that future earnings, if any, will be retained for
the growth and development of the Company's business and, accordingly, the
Company does not anticipate that any dividends will be declared or paid on the
Common Stock for the foreseeable future. See "Dividend Policy."
No Prior Public Market for the Securities; Arbitrary Determination of
Offering Price; Price Volatility. Prior to this Offering, there has been no
public market for the Securities, and there can be no assurance that an active
trading market for any of the Securities will develop or, if developed, be
sustained after the Offering. See "Underwriting." The initial public offering
prices of the Securities and the exercise price and terms of the Warrants have
been determined arbitrarily by negotiations between Omega and the
Representative. Factors considered in such negotiations, in addition to
prevailing market conditions, included the history of and prospects for the
industry in which Omega competes, an assessment of Omega's management, the
prospects of the Company, its capital structure and certain other factors as
were deemed relevant. Therefore, the public offering prices of the Securities
and the exercise prices and terms of the Warrants do not necessarily bear any
relationship to Omega's assets, book value, results of operations or any other
established valuation criteria and may not be indicative of prices that may
prevail at any time or from time to time in the public market for the
Securities. See "Underwriting." 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. In addition, the market
prices of the common stock of many publicly traded health care companies have in
the past been, and can in the future be expected to be, especially volatile.
Announcements of regulatory developments on both the federal and state level and
economic and other external factors, as well as period-to-period fluctuations in
the Company's financial results, may have a significant impact on the market
prices of the Securities.
Portion of Offering Proceeds Benefiting Management. Net proceeds to the
Company from the sale of the Securities offered hereby will be used to repay
$30,000, $50,000 and $25,000 of the Company's Bridge Notes held by Dr. Glovsky,
the Chairman of the Board of the Company, Dr. Bellavia, a director of the
Company, and Dr. Grove, a director of the Company, respectively, and to pay
approximately $333,600 to Dr. Grove, as partial consideration for acquiring
certain assets of his practice in connection with the Acquisitions. In addition,
a portion of the net proceeds from the sale of Securities may be used to make
certain cash payments to Dr. Glovsky and Mayflower, a principal stockholder of
the Company, in connection with consulting services rendered by them to Omega.
See "Use of Proceeds" and "Certain Transactions."
Potential Adverse Effect of Representative's Warrants. At the consummation
of the Offering, the Company will sell to the Representative and/or its
designees, for nominal consideration, warrants to purchase up to 180,000 shares
of Common Stock and/or 180,000 Warrants (the "Representative's Warrants"). The
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering, at an exercise
price of $ per share [120% of the public offering price of the Common
Stock] and $ per Warrant [120% of the public offering price of the
Warrants]. The Warrants obtained upon exercise of the Representative's Warrants
will be exercisable for a period of four years commencing one year after the
effective date of this Offering, at an exercise price of $ per share [110%
of the initial public offering price of the Common Stock]. For the term of the
Representative's Warrants, the holders thereof will have, at nominal cost, the
opportunity to profit from a rise in the market price of the Securities without
assuming the risk of ownership, with a resulting
10
<PAGE>
dilution in the interest of other security holders. As long as the
Representative's Warrants remain unexercised, the Company's ability to obtain
additional capital might be adversely affected. Moreover, the Representative may
be expected to exercise the Representative's Warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital through a new
offering of its securities on terms more favorable than those provided by the
Representative's Warrants. See "Underwriting."
Speculative Nature of the Warrants. The Warrants do not confer any rights
of Common Stock ownership on their holders, such as voting rights or the right
to receive dividends, but rather merely represent the right to acquire shares of
Common Stock at a fixed price for a limited period of time. Specifically,
commencing , 1997 [six months after the date of this Prospectus],
holders of the Warrants may exercise their right to acquire Common Stock and pay
an exercise price of $ per share [110% of the initial public offering price
per share of Common Stock], subject to adjustment upon the occurrence of certain
dilutive events, until , 2002 [five years after the date of this
Prospectus], after which date any unexercised Warrants will expire and have no
further value. Moreover, following the completion of this Offering, the market
value of the Warrants will be uncertain and there can be no assurance that the
market value of the Warrants will equal or exceed their initial public offering
price. There can be no assurance that the market price of the Common Stock will
ever equal or exceed the exercise price of the Warrants and, consequently,
whether it will ever be profitable for holders of the Warrants to exercise the
Warrants.
Potential Adverse Effect of Redemption of Warrants. Commencing ,
1998 [18 months after the date of this Prospectus], the Warrants are subject to
redemption by the Company at $0.10 per Warrant on thirty days' prior written
notice to the warrantholders if the average closing bid price of the Common
Stock as reported on Nasdaq equals or exceeds $ per share [200% of the
initial public offering price of the Common Stock] of Common Stock for any 20
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. If the
Warrants are redeemed, holders of the Warrants will lose their rights to
exercise the Warrants after the expiration of the 30-day notice of redemption
period. Upon receipt of a notice of redemption, holders would be required to:
(i) exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the current market
price, if any, when they might otherwise wish to hold the Warrants or (iii)
accept the redemption price which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities--Warrants."
Potential Adverse Effect of Substantial Shares of Common Stock Reserved.
The Company has reserved a total of 2,693,333 shares of Common Stock for
issuance as follows: (i) 1,800,000 shares for issuance upon exercise of the
1,800,000 Warrants; (ii) 180,000 shares for issuance upon exercise of the
Representative's Warrants; (iii) 180,000 shares for issuance upon exercise of
the Warrants issuable upon exercise of the Representative's Warrants; (iv)
83,333 shares (assuming an initial public offering price per share of $6.00) for
issuance upon exercise of options to be granted upon consummation of the
Acquisitions to an Affiliated Orthodontist; (v) 350,000 shares for issuance upon
exercise of options granted to three officers of the Company pursuant to the
Stock Option Plan; and (vi) 100,000 shares for issuance pursuant to grants that
may be made under the Stock Option Plan. The existence of the Warrants, the
Representative's Warrants and any other options or warrants may adversely affect
the Company's ability to consummate future equity financings. Further, the
holders of such warrants and options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. See "Shares Eligible for Future Sale."
Legal Restrictions on Sales of Shares Underlying the Warrants. The Warrants
are not exercisable unless, at the time of the exercise, the Company has a
current prospectus covering the shares of Common Stock issuable upon exercise of
the Warrants, and such shares have been registered, qualified or deemed to be
exempt under the securities laws of the state of residence of the exercising
holder of the Warrants. Although the Company has agreed to use its best efforts
to keep a registration statement covering the shares of Common Stock issuable
upon the exercise of the Warrants effective for the term of the Warrants, if it
fails to do so for any reason, the Warrants may be deprived of value.
The Shares and Warrants are separately transferable immediately upon
issuance. Purchasers may buy Warrants in the aftermarket in, or may move to,
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified during the period that the Warrants are exercisable. In this event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants, and holders of Warrants would have no choice but to
attempt to sell the Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised. See "Description of Securities."
Limitations on Liability and Indemnification Matters. As permitted by the
Delaware General Corporation Law, the Company has included in its Certificate of
Incorporation a provision to eliminate the personal liability
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<PAGE>
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, the
By-Laws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary and the
Company is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. See "Description of Securities--Limitations on Liability of
Officers and Directors."
Representative's Potential Influence on the Market. A significant amount of
the Securities offered hereby may be sold to customers of the Representative.
Such customers subsequently may engage in transactions for the sale or purchase
of such Securities through or with the Representative. If it participates in the
market, as a market maker or otherwise, the Representative may exert a
dominating influence on the market, if one develops, for the Securities
described in this Prospectus. Such market making activity may be discontinued at
any time. The price and liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in such market. See "Underwriting."
No Assurance of Nasdaq Listing; Risk of Low-Priced Securities; Risk of
Application of Penny Stock Rules. The Board of Governors of the National
Association of Securities Dealers, Inc. has established certain standards for
the initial listing and continued listing of a security on Nasdaq. The standards
for initial listing require, among other things, than an issuer have total
assets of $4,000,000 and capital and surplus of at least $2,000,000; that the
minimum bid price for the listed securities be $3.00 per share; that the minimum
market value of the public float (the shares held by non-insiders) be at least
$2,000,000; and that there be at least two market makers for the issuer's
securities. The maintenance standards require, among other things, that an
issuer have total assets of at least $2,000,000 and capital and surplus of at
least $1,000,000; that the minimum bid price for the listed securities be $1.00
per share; that the minimum market value of the "public float" be at least
$1,000,000; and that there be at least two market makers for the issuer's
securities. A deficiency in either the market value of the public float or the
bid price maintenance standard will be deemed to exist if the issuer fails the
individual stated requirement for ten consecutive trading days. If an issuer
falls below the bid price maintenance standard, it may remain on Nasdaq if the
market value of the public float is at least $1,000,000 and the issuer has
$2,000,000 in equity. Nasdaq has recently proposed new maintenance criteria
which, if implemented, would eliminate the exception to the $1.00 per share
minimum bid price and require, among other things, $2,000,000 net tangible
assets, $1,000,000 market value of the public float and adherence to certain
corporate governance provisions There can be no assurance that the Company will
continue to satisfy the requirements for maintaining a Nasdaq listing. If the
Company's securities were to be excluded from Nasdaq, it would adversely affect
the prices of such securities and the ability of holders to sell them, and the
Company would be required to comply with the initial listing requirements to be
relisted on Nasdaq.
If the Company is unable to satisfy maintenance requirements and the price
per share were to drop below $5.00, then unless the Company satisfied certain
net asset tests, the Company's securities would become subject to certain penny
stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock. If the Common Stock becomes subject to the penny stock rules,
investors in the Offering may find it more difficult to sell their shares.
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements,
including, without limitation, the unaudited pro forma financial statements of
Omega, regarding the plans and objectives of management for future operations
including plans and objectives relating to the development of the Orthodontic
Affiliates. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based on a successful execution of the Company's expansion
strategy and assumptions that the Orthodontic Affiliates will be profitable,
that the orthodontic industry will not change materially or adversely, and that
there
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<PAGE>
will be no unanticipated material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, particularly in view
of the Company's early stage of operations, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
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<PAGE>
THE COMPANY
Omega was incorporated in Delaware in August 1996. It was founded by the
principals of The Orthodontic Management Effectiveness Group of America, LLC
("OMEGA, LLC"), a California-based orthodontic practice management and
consulting firm. Omega subsequently acquired OMEGA, LLC's orthodontic practice
management business and certain related assets in exchange for 1,050,000 shares
of Omega's Common Stock. See "Certain Transactions." OMEGA, LLC continues to
provide certain computer hardware and software consulting services to
orthodontic practices, including certain of the Initial Orthodontic Affiliates.
The Company's principal executive offices are located at 3621 Silver Spur
Lane, Acton, California 93510, and its telephone number is (805) 269-2841.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Securities offered hereby,
after deduction of underwriting discounts and other estimated offering expenses
are estimated to be approximately $8,552,600 (approximately $9,985,490 if the
Over-allotment Option is exercised in full). The Company intends to utilize such
net proceeds as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Dollar Amount (1) Percentage
-------------------- -------------
<S> <C> <C>
Repayment of the Bridge Notes (2) ........................... $ 875,000 10.2%
Payments due upon consummation of the Acquisitions (3) ...... 2,098,000 24.5
Funds available for additional affiliations (4) ............ 5,000,000 58.5
Development or acquisition of software for use by Orthodontic
Affiliates (5) ............................................. 200,000 2.3
Working capital and general corporate purposes (6) ......... 379,600 4.5
----------- -----
TOTAL ...................................................... $8,552,600 100.0%
=========== =====
</TABLE>
- ----------------
(1) The amount set forth with respect to each purpose represents the Company's
current estimate of the approximate amount of the net proceeds that will be
used for such purpose. The Company reserves the right, however, to change
the amount of such net proceeds that will be used for any purpose to the
extent that management determines that such change is advisable.
Consequently, management of the Company will have broad discretion in
determining the manner in which the net proceeds of this Offering are
applied.
(2) The Bridge Notes are in the aggregate principal amount of $875,000 as of
April 30, 1997, bear interest at the rate of 15% per annum and are payable
upon the earlier of the closing of this Offering or September 30, 1997. The
net proceeds from the sale of the Bridge Notes were used for certain
expenses of this Offering and for working capital and general corporate
purposes. See "Management's Plan of Operation--Liquidity and Capital
Resources." Dr. Glovsky, Dr. Bellavia and Dr. Grove, each a director of the
Company, will receive an aggregate of $105,000 in payment of the Bridge
Notes that they purchased from the Company. See "Certain Transactions."
(3) The Company plans to consummate the Acquisitions concurrently with the
closing of this Offering. In connection with the Acquisitions, the Company
will acquire the equity interests in the Initial MSOs associated with the
seven Initial Orthodontic Affiliates (except in the case of one sole
proprietorship where it will acquire certain assets of such proprietorship).
The costs of the Acquisitions will be paid through a combination of (i) cash
aggregating approximately $2,098,000, (ii) five year 8.5% notes aggregating
approximately $794,000, (iii) 315,655 shares of Common Stock of the Company
(assuming an initial public offering price per share of $6.00) and (iv) an
option to acquire 83,333 shares of Common Stock (assuming an initial public
offering price per share of $6.00) at an exercise price equal to the initial
public offering price per share. See "Management's Plan of Operation." Dr.
Grove, one of the Company's directors, has agreed to sell certain assets of
his practice to the Company concurrently with the closing of this Offering
and, in partial consideration therefor, will receive approximately $333,600
of the net proceeds of this Offering, a five year 8.5% note in the amount of
approximately $333,600 and 55,595 shares of Common Stock of the Company
(assuming an initial public offering price per share of $6.00). See "Certain
Transactions."
(4) The Company plans to enter into Affiliation Agreements and Management
Service Agreements with up to an additional 24 Orthodontic Affiliates during
the 12 months following the closing of this Offering. The Company intends to
finance these transactions through a combination of cash payments and
issuances of notes and shares of Common Stock of the Company. The Company
estimates that on average it will need approximately $200,000 of cash to
complete each such transaction. See "Management's Plan of Operation."
15
<PAGE>
(5) The Company plans to develop or acquire certain software for use by
Orthodontic Affiliates in implementing the Model and estimates that
development or acquisition costs will be approximately $200,000.
(6) The remaining portion of the net proceeds will be allocated to working
capital and will be used by the Company to fund operations as required,
including amounts required to pay officers' salaries, consultant and
professional fees (including approximately $270,000 which reflects the
first two cash payments to be made to Dr. Glovsky and Mayflower over three
years beginning in January 1998), office-related expenses and other
corporate expenses, including the leasing of office space in Massachusetts
where the Company intends to locate its financial operations and staff. See
"Management's Plan of Operation--Plan of Operation" and
"Business--Facilities." The additional net proceeds received from the
exercise of the Over-allotment Option, if any, will be used for working
capital and general corporate purposes.
The Company anticipates, based on current plans and assumptions relating to
its operations, that the net proceeds of this Offering, together with net cash
from operations, should be sufficient to satisfy the Company's cash requirements
for at least the 12 months after the date of this Prospectus. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including the availability of orthodontic practices meeting the
Company's affiliation criteria, the extent to which the Orthodontic Affiliates
gain market acceptance, marketing activities and competition. There can be no
assurance that additional capital, if needed, will be available on terms
acceptable to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available,
will likely include restrictive covenants and provide for security interests in
the Company's assets. The failure of the Company to raise capital on acceptable
terms when needed could have a material adverse effect on the Company. See "Risk
Factors--Possible Need for Additional Financing" and "Risk Factors--Risks
Associated with Expansion." Pending the aforementioned uses, the net proceeds of
this Offering will be invested in interest-bearing government securities or
short-term, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock. The
Company expects that future earnings, if any, will be retained for the growth
and development of the Company's business and, accordingly, the Company does not
anticipate that any dividends will be declared or paid on the Common Stock for
the foreseeable future. The declaration, payment and amount of future dividends,
if any, will depend upon the future earnings, results of operations, financial
position and capital requirements of the Company, among other factors.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 the capitalization
of the Company (i) on an actual basis, (ii) on a pro forma basis to reflect (a)
the issuance of 10,000 shares of Common Stock as compensation for past services
to Leonard, Mulherin & Greene, P.C., a public accounting firm that provides
consulting services to the Company ("LMG"), (b) the issuance of Bridge Notes in
the aggregate principal amount of $300,000, and 60,000 shares of Common Stock
issued in connection therewith, since December 31, 1996, (c) a non-recurring
compensation expense of approximately $2.2 million paid to two consultants,
which expense is comprised of approximately $1.4 million attributable to the
release of 450,000 shares of Common Stock and an aggregate of approximately
$842,000 in cash payments to be paid over three years beginning in January 1998
and (d) the assumed consummation of the Acquisitions and (iii) on a pro forma as
adjusted basis to give effect to the transactions described in clause (ii) and
the sale of the 1,800,000 shares of Common Stock and the 1,800,000 Warrants
offered hereby and the initial application of the net proceeds therefrom. See
"Management's Plan of Operation -- Plan of Operation" and "Management--
Consultants." This table should be read in conjunction with "Management's Plan
of Operation" and the financial statements and pro forma financial statements
and the notes thereto which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Actual Pro Forma Pro Forma As Adjusted
--------------- --------------- -----------------------
<S> <C> <C> <C>
Bridge Notes ................................. $ 575,000 $ 875,000 $ --
============ ============ ============
Notes payable ................................. -- $ 836,049 $ 836,049
Due to related party ........................... -- 842,000 842,000
Stockholders' equity:
Common Stock, $.01 par value per share;
10,000,000 shares authorized; 1,615,000 shares
outstanding; 2,000,655 shares outstanding, pro
forma; 3,800,655 shares outstanding, pro forma,
as adjusted (1) .............................. 16,150 20,007 38,007
Additional paid-in capital .................. -- 3,236,273 11,770,873
Accumulated deficit ........................... (236,612) (2,424,112) (2,424,112)
------------ ------------ ------------
Total stockholders' equity (deficit) ......... (220,462) 832,168 9,384,768
------------ ------------ ------------
Total capitalization ........................... $ 354,538 $ 3,385,217 $ 11,062,817
============ ============ ============
</TABLE>
- ----------------
(1) Does not include (i) 100,000 shares of Common Stock reserved for issuance
pursuant to grants that may be made under the Stock Option Plan, (ii)
350,000 shares of Common stock reserved for issuance upon exercise of
options granted to three officers of the Company under the Stock Option Plan
at an exercise price equal to the initial public offering price of the
Common Stock and (iii) 83,333 shares of Common Stock (assuming an initial
public offering price per share of $6.00) reserved for issuance upon
exercise of an option to be granted upon consummation of the Acquisitions to
an Affiliated Orthodontist at an exercise price equal to the initial public
offering price of the Common Stock. See "Management--Incentive Stock Plan."
17
<PAGE>
DILUTION
At December 31, 1996, after giving effect to (a) the issuance of 10,000
shares of Common Stock as compensation for past services to LMG, (b) the
issuance of Bridge Notes in the aggregate principal amount of $300,000, and
60,000 shares of Common Stock issued in connection therewith, since December 31,
1996, (c) a non-recurring compensation expense of approximately $2.2 million
paid to two consultants, which expense is comprised of approximately $1.4
million attributable to the release of 450,000 shares of Common Stock and an
aggregate of approximately $842,000 in cash payments to be paid over three years
beginning in January 1998 and (d) the assumed consummation of the Acquisitions,
the pro forma negative net tangible book value of the Company was ($4,110,205),
or $(2.05) per share. "Pro forma net tangible book value per share" is
determined by dividing the Company's pro forma net tangible book value (total
pro forma tangible assets less total pro forma liabilities) by the pro forma
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of the Securities offered hereby and the initial application of the
net proceeds therefrom, the adjusted pro forma net tangible book value of the
Company at December 31, 1996 would have been $4,442,395, or $1.17 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.22 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $4.83 per share (or approximately 81%) to new
investors purchasing the shares of Common Stock in this Offering. The following
table illustrates this per share dilution:
Assumed initial public offering price.................................. $6.00
Pro forma negative net tangible book value prior to this
Offering ................................................ $(2.05)
Increase attributable to new investors ................. 3.22
------
Pro forma net tangible book value after this Offering ............... 1.17
------
Dilution in pro forma net tangible book value to new investors ...... $4.83
======
In the event the Over-allotment Option is exercised in full, the pro forma
net tangible book value as of December 31, 1996 would be $5,875,285, or $1.44
per share of Common stock, which would result in immediate dilution in net
tangible book value to new investors of approximately $4.56 per share.
The following table sets forth, at December 31, 1996, after giving pro
forma effect to the issuance of shares to the Affiliated Orthodontists as
partial consideration for the consummation of the Acquisitions at the assumed
initial public offering price of the Common Stock, the total consideration paid
and the average price paid per share of Common Stock by existing stockholders,
new investors in this Offering and the Affiliated Orthodontists:
<TABLE>
<CAPTION>
Shares Issued Total Consideration Average
--------------------------- ----------------------------- Price Per
Number Percent Amount Percent Share
------------ ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1) (2) ...... 1,685,000 44.3% $ 1,362,350 9.7% $ .81
New investors ..................... 1,800,000 47.4% 10,800,000 76.8% $6.00(3)
Affiliated Orthodontists ............ 315,655 8.3% 1,893,930 13.5% $6.00
----------- ------- ------------ ------ ---------
Total (1) ........................... 3,800,655 100% $14,056,280 100%
=========== ======= ============ ======
</TABLE>
- ----------------
(1) Does not include (i) 350,000 shares issuable upon exercise of outstanding
options under the Stock Option Plan and 100,000 shares reserved and
available for grants under the Stock Option Plan; and (ii) 83,333 shares
(assuming an initial public offering prior per share of $6.00) reserved for
issuance upon exercise of an option to be granted upon consummation of the
Acquisitions to an Affiliated Orthodontist. See "Management -- Incentive
Stock Plan."
(2) Includes 10,000 shares issued as compensation for past services to LMG,
60,000 shares issued in connection with $300,000 of Bridge Notes issued
subsequent to December 31, 1996 and the value attributed to 450,000 shares
released to Dr. Glovsky, the Chairman of the Board of the Company, and
Mayflower, a private banking firm in connection with consulting services
rendered. See "Management's Plan of Operation -- Plan of Operation."
(3) Attributes no value to the Warrants.
18
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data, both actual and pro
forma, of the Company. The selected financial data in the table are derived from
the financial statements and pro forma financial statements of Omega and the
Initial Orthodontic Affiliates. The data should be read in conjunction with the
financial statements and pro forma financial statements, related notes, and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
August 30, 1996 Pro Forma (1) Percentage of
(Inception) to Year Ended Practice
December 31, 1996 December 31, 1996 Revenue
----------------- ----------------- -------------
<S> <C> <C> <C>
Statement of Operations Data:
Practice revenue .......................................... $ -- $4,615,677 100.0%
Orthodontists' compensation .............................. -- 1,281,735 27.8
----------- ------------ ------
Net management revenue .................................... -- 3,333,942 72.2
Direct practice expenses ................................. -- 2,588,761 56.1
----------- ------------ ------
Income (loss) from operations before management expenses . -- 745,181 16.1
Management expenses ....................................... 248,018 650,195(2) 14.1
----------- ------------ ------
Income (loss) from operations .............................. (248,018) 94,986 2.0%
======
Other income (expense) .................................... 15,906 (1,635)
----------- ------------
Income (loss) before income taxes ........................ (232,112) 93,351
Provision for income taxes ............................... -- 76,782
----------- ------------
Net income (loss) .......................................... $ (232,112) $ 16,569
=========== ============
Pro forma net income per share (3) ........................ $ .01
============
Shares used to compute pro forma net income per share (3) . 2,146,488
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted (1) (4)
------------- ---------------- ---------------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ......... $ (368,032) $(2,795,981) $ 5,756,619
Total assets ........................ 490,923 6,733,578 1,232,714
Total liabilities .................. 711,385 5,901,410 2,927,946
Stockholders equity (deficit) ...... (220,462) 832,168 9,384,768
</TABLE>
- ----------------
(1) The pro forma statement of operations data for the fiscal year ended
December 31, 1996 is presented as if the Acquisitions had occurred on
January 1, 1996. The pro forma balance sheet data is presented as if the
Acquisitions had occurred on December 31, 1996 and certain subsequent
events had occurred prior to December 31, 1996. See Note 5 to the Unaudited
Pro Forma Balance Sheet Adjustments.
(2) Includes $121,485 of goodwill amortization. See Note 6 to the Unaudited Pro
Forma Statement of Operations Adjustments.
(3) See Note 12 to the Unaudited Pro Forma Statement of Operations Adjustments.
(4) Adjusted to give effect to the sale of the Securities offered hereby (at
the assumed initial public offering price of $6.00 per Share and $.10 per
Warrant) and the initial application of the net proceeds therefrom. See
"Use of Proceeds."
19
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
This Prospectus contains forward-looking statements which involve risks and
uncertainties. See "Risk Factors--Risks Associated with Forward-Looking
Statements Included in this Prospectus." Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, but not limited to, those discussed in "Risk
Factors."
General
Omega was incorporated in Delaware in August 1996. It was founded by the
principals of OMEGA, LLC, a California-based orthodontic practice management and
consulting firm. Following this Offering, the Company intends to offer its
services primarily under an affiliate relationship whereby it will purchase the
equity interests in the orthodontic practice's MSO pursuant to an Affiliation
Agreement and enter into a long term Management Services Agreement with the
Affiliated Orthodontist's Orthodontic Affiliate. Pursuant to the Management
Services Agreement, the Company will receive a monthly management fee for
providing all of the Orthodontic Affiliate's practice needs, including
facilities, support staff and supplies, as well as a program of systems, methods
and procedures designed to enhance the growth, efficiency and profitability of
the Orthodontic Affiliate.
Pursuant to the Affiliation Agreement, the Affiliated Orthodontist will
typically convert his existing professional corporation into a general
corporation that will function as the MSO and create a new professional
corporation (the Orthodontic Affiliate) through which the Affiliated
Orthodontist will continue to provide orthodontic care. The MSO will retain
certain assets and liabilities which will typically include the lease for the
Orthodontic Affiliate's office space, clinical supplies and equipment and office
furniture, supplies and equipment. The Company will generally acquire all of the
equity interests of the MSO from the Affiliated Orthodontist, the purchase price
for which is determined through an assessment of immediate and future return on
investment. The MSO typically is acquired for a combination of cash, five year
notes and unregistered Common Stock or stock options. The average MSO purchase
price is expected to be approximately $600,000, of which the cash portion is
expected to be approximately $200,000.
The Management Services Agreement provides that the Orthodontic Affiliate
will utilize the facility and the Company's services for a period of 20 years,
with two ten year extensions. While each Management Services Agreement will be
negotiated based on specific circumstances, the management fees charged will
typically be 65% to 75% of the Orthodontic Affiliate's gross income, which is
expected to be sufficient to pay all of the MSO's expenses and provide a return
on the Company's investment. A portion of the profits, if any, exceeding an
agreed upon profit target will generally be shared with the Orthodontic
Affiliate. At the retirement, disability or death of the Affiliated
Orthodontist, the Company will locate a replacement Affiliated Orthodontist to
purchase the Orthodontic Affiliate and assume the Management Services Agreement.
Plan of Operation
Omega's financial results for the period from August 30, 1996 (inception)
to December 31, 1996 relate to its initial organization and establishment of
infrastructure. During this period, Omega provided management consulting
services to 10 orthodontic practices on a fee for services basis. The revenue
and expenses are associated with the management consulting services provided by
Omega during that period.
Omega has executed Affiliation Agreements with the seven Initial
Orthodontic Affiliates. Pursuant to those agreements, Omega will acquire the
equity interests in the MSOs of the seven Initial Orthodontic Affiliates (except
in the case of one sole proprietorship where it will acquire certain assets of
such proprietorship) concurrently with the closing of this Offering. Each of the
Initial Orthodontic Affiliates is operated with one orthodontist, who is
typically supported by a staff of three dental assistants and three office
personnel. The seven Initial Orthodontic Affiliates generated gross revenues for
the year ended December 31, 1996 of approximately $4.6 million. Gross revenues
for each Initial Orthodontic Affiliate for that year ranged from a low of
approximately $390,000 to a high of approximately $975,000.
In consideration for acquiring the Initial MSOs, the Company will pay the
aggregate of approximately $2.1 million in cash, issue an aggregate of
approximately $794,000 in notes bearing interest at 8.5%, issue an aggregate of
315,655 shares of Common Stock valued at the initial public offering price per
share and grant an option to acquire 83,333 shares of Common Stock (assuming an
initial public offering price per share of $6.00) at an exercise price equal to
the initial public offering price per share.
20
<PAGE>
The Company expects to show a significant loss from operations for the six
month period ending June 30, 1997 due primarily to compensation paid to two
consultants. On April 28, 1997, each of Dr. Glovsky, the Chairman of the Board
of the Company, and Mayflower, a private banking firm, received 225,000 shares
of Common Stock for consulting services to Omega and will receive approximately
$421,000 of cash payments over three years beginning in January 1998. See
"Certain Transactions." The Company will recognize a non-recurring compensation
expense reflecting delivery of such shares and these payment obligations in
April 1997 of approximately $2.2 million. This expense is comprised of
approximately $1.4 million attributable to the Common Stock and an aggregate of
approximately $842,000 attributable to the payment obligation.
At the end of the 12 months following this Offering, the Company intends to
be affiliated with approximately 31 Orthodontic Affiliates. In addition to the
Affiliation Agreements with the seven Initial Orthodontic Affiliates, Omega has
executed non-binding letters of intent to affiliate with four other orthodontic
practices. The ability of the Company to achieve its expansion plans will depend
upon a number of factors, including (i) the Company's ability to attract
orthodontists to affiliate with the Company, the availability of suitable
markets and the Company's ability to obtain suitable locations within those
markets; (ii) the Company's ability to locate existing practices for
affiliation, affiliate with such practices on favorable terms and successfully
integrate the affiliated operations into the Company's existing operations; and
(iii) the availability of adequate financing to affiliate with orthodontic
practices. A shortage of available orthodontists with the skills and experience
required by the Company would have a material adverse effect on the Company's
expansion plans. 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 or that the Company will be able to manage effectively and enhance the
profitability of its Orthodontic Affiliates. The accompanying pro forma
financial statements do not include costs anticipated to be incurred in
connection with this expansion strategy.
The acquisition of the equity interests in the Initial MSOs (and certain
assets of the sole proprietorship) will be accounted for by the Company using
the purchase method of accounting, which records as goodwill the excess of
purchase price over the fair market value of the net assets of the acquired
businesses. As of December 31, 1996, the Company's total pro forma assets were
approximately $6.7 million, of which approximately $4.8 million, or 71%, was
goodwill. Goodwill will be amortized on a straight-line basis over a 40 year
period.
Substantially all of the goodwill on the Company's pro forma adjusted
balance sheet as of December 31, 1996 is related to acquiring the Initial MSOs.
The Company evaluates each acquisition and establishes an appropriate
amortization period based on the underlying facts and circumstances. Currently,
the Company uses 40 years consistent with the extended terms of the Management
Services Agreements. Subsequent to each acquisition, the Company will reevaluate
such facts and circumstances to determine if the related goodwill continues to
be realizable and if the amortization period continues to be appropriate.
Amortization of the goodwill on the Company's pro forma adjusted balance
sheet as of December 31, 1996 will produce an annual amortization expense of
approximately $121,485. Affiliations with additional Orthodontic Affiliates
which result in the recognition of additional goodwill would cause amortization
expense to increase further. Although the net unamortized balance of goodwill on
the Company's unaudited pro forma balance sheet as of December 31, 1996 was not
considered to be impaired, any future determination that a significant
impairment has occurred would require the write-off of the impaired portion of
unamortized goodwill, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Unaudited Pro Forma Results of Operations
The following discussion of the unaudited pro forma results of operations
of the Company and of the combined results of operations of the Initial
Orthodontic Affiliates should be read in conjunction with the Unaudited Pro
Forma Financial Statements and Notes thereto and the financial statements of
Omega and each of the Initial Orthodontic Affiliates included elsewhere in this
Prospectus.
Practice Revenue. The pro forma revenue of the Company consists almost
exclusively of amounts to be earned under the Management Services Agreement. The
revenue included in the pro forma financial statements is that which would have
been earned based on the operating results of the Initial Orthodontic Affiliates
for the year ended December 31, 1996, assuming the Affiliation Agreements and
Management Service Agreements had been entered into on January 1, 1996. The pro
forma revenue of $4.6 million for the year ended December 31, 1996 is based on
the accrued gross revenue of the Initial Orthodontic Affiliates for the year
ended December 31, 1996.
21
<PAGE>
Orthodontists' Compensation. Pursuant to the Management Services
Agreements, the Orthodontic Affiliates retain the difference between the patient
revenue of the Orthodontic Affiliate and the management fee payable to the
Company. The Orthodontic Affiliates are responsible for paying certain expenses
directly, including salaries and benefits of the Affiliated Orthodontist and any
other practice providers, physician licensing fees, board certification fees,
professional liability insurance, certain professional education and legal and
professional fees. In addition, the Orthodontic Affiliate is entitled to a
portion of the profits, if any, exceeding an agreed upon profit target.
Direct Practice Expenses. The pro forma direct practice expenses for the
year ended December 31, 1996 reflect the direct practice expenses of the Initial
Orthodontic Affiliates which would have been payable by the Company under the
Management Services Agreement. The Company expects that direct practice expenses
will increase as the Company affiliates with additional Orthodontic Affiliates
but that direct practice expenses as a percentage of practice revenue will
decrease as the Company implements the Model at additional Orthodontic
Affiliates. Direct practice expenses include:
Employee Costs. Includes all salaries, payroll taxes and fringe benefits
of the dental assistants and office staff.
Other Direct Costs. Includes dental and office supplies, laboratory
costs, facilities and equipment.
General and Administrative. All other operating expenses including
advertising, repairs and maintenance, computer support, telephone,
utilities, taxes and licenses.
Bad Debt Expense. Reflects an allowance for possible uncollectible
practice revenue.
Depreciation and Amortization. Includes depreciation of leasehold
improvements and equipment.
Management Expenses. The pro forma management expenses for the year ended
December 31, 1996 reflect an estimate of a complete year of expenses that may be
incurred with the management of the seven Initial Orthodontic Affiliates and the
provision of limited management consulting services to non-affiliated
orthodontic practices. The pro forma expenses include certain costs associated
with operating as a publicly-traded company following this Offering. Pro forma
management expenses do not include the non-recurring compensation expense of
$2.2 million that the Company will recognize in April 1997. See "--Plan of
Operation." Also, pro forma management expenses do not include any costs for
travel, consulting or professional fees associated with the identification,
evaluation and integration of additional Orthodontic Affiliates which the
Company will incur in connection with the planned affiliation with up to 24
additional Orthodontic Affiliates. These costs may be substantial and may cause
the Company to incur operating losses. Moreover, pro forma management expenses
do not include the anticipated incremental costs of managing such additional
Orthodontic Affiliates as the related management fees are not included in the
pro forma revenues. Such costs may also be substantial and may vary according to
the operations of each new Orthodontic Affiliate. Management expenses include
the following:
Employee and Consulting Costs. Includes the salaries of the President,
the part-time Chief Financial Officer, and the part-time administrative
assistant, fees for a full time practice consultant and the travel and
incremental costs associated with the ongoing support of the seven
Initial Orthodontic Affiliates.
General and Administrative. Includes legal, auditing, insurance, rent,
telephones and marketing costs.
Income Taxes. Pro forma income taxes assume that the Company had operated
as a tax paying entity, subject to an effective combined statutory tax rate for
federal and state income taxes of 40%, increased by the non-deductible portion
of goodwill amortization.
Liquidity and Capital Resources
Omega has experienced net losses, negative cash flow, a deficit in working
capital and an accumulated deficit since its inception. For the period from
August 30, 1996 (inception) to December 31, 1996, Omega incurred a net loss of
$232,112. Omega has generated limited revenues to date, and will not generate
sufficient revenues to cover expenses without consummation of this Offering and
the Acquisitions. The Company expects to show a significant loss from operations
for the six month period ending June 30, 1997 due primarily to compensation
earned by two consultants in April 1997. See "--Plan of Operation." At December
31, 1996, the Company had an accumulated deficit since inception of $232,112 and
a working capital deficit of $368,032.
22
<PAGE>
Omega has financed its operations to date from the sale of the Bridge
Notes. The Bridge Notes, which bear interest at the rate of 15% per annum
payable currently, are payable on the earliest of the closing of this Offering
or September 30, 1997. Omega sold the Bridge Notes in a private offering to a
limited number of persons meeting the definition of "accredited investor" under
the Securities Act. The Bridge Notes were offered in principal amounts of
$50,000 (subject to reduction at the discretion of Omega) and included a right
to receive, without additional consideration, 10,000 shares of Common Stock
(subject to a corresponding reduction) upon issuance of the Bridge Notes. During
September, October and November 1996 and February and April 1997, Omega sold
Bridge Notes in the aggregate principal amount of $875,000 and issued 175,000
shares of Common Stock in connection therewith. The Company plans to repay the
entire amount of principal and interest outstanding on the Bridge Notes with a
portion of the net proceeds of this Offering. See "Use of Proceeds."
In connection with the Affiliation Agreements, the Company has committed,
contingent upon this Offering, to acquire the Initial MSOs. The Company will pay
approximately $2.1 million in cash, issue an aggregate of approximately $794,000
in notes bearing interest at 8.5% with interest only payable the first year and
the principal to be amortized over the next four years, issue an aggregate of
315,655 shares of Common Stock valued at the initial public offering price per
share and grant an option to acquire 83,333 shares of Common Stock (assuming an
initial public offering price per share of $6.00) at an exercise price equal to
the initial public offering price per share.
The Company intends to affiliate with up to an additional 24 Orthodontic
Affiliates during the 12 months following the closing of this Offering. The
purchase price of each MSO is anticipated to average $600,000, with the cash
portion of the purchase price expected to average approximately $200,000. The
Company expects to finance this expansion through the use of approximately $5.0
million of the net proceeds from this Offering. See "Use of Proceeds."
The Company will typically purchase the equity interests in the MSO that
holds certain assets of and is associated with an Orthodontic Affiliate with a
combination of cash, notes payable and Common Stock of the Company. The purchase
price and terms are determined by the Company on a case by case basis after due
diligence has been performed.
The Company anticipates that capital expenditures during 1997 will relate
primarily to affiliations with additional Orthodontic Affiliates. It is
anticipated that funding for these purposes will be derived from the proceeds of
this Offering and cash flow from operations. Management believes that such
sources will be sufficient to fund the Company's cash requirements for at least
12 months following completion of this Offering. In the future, the Company will
seek to raise additional funds through borrowings or the issuance of debt or
equity securities. There can be no assurance that sufficient funds will be
available on terms acceptable to the Company, if at all.
23
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BUSINESS
The Company provides management and marketing services to orthodontic
practices in the United States. Since its inception in August 1996, Omega has
provided these services on a fee for services basis to 10 orthodontic practices,
including four of the Initial Orthodontic Affiliates. Following this Offering,
the Company intends to offer its services primarily under an affiliate
relationship whereby it purchases the equity interests in the MSO that holds
certain assets of and is associated with an Orthodontic Affiliate and enters
into a long term Management Services Agreement with the Orthodontic Affiliate.
The Company has signed Affiliation Agreements with the seven Initial Orthodontic
Affiliates and letters of intent with four additional practices.
Upon consummation of the Acquisitions, the Company will enter into
Management Services Agreements with the Initial Orthodontic Affiliates. Pursuant
to these Management Services Agreements, the Company will provide facilities,
support staff and supplies to the Initial Orthodontic Affiliates and will
institute a program of systems, methods and procedures the Company refers to as
the Omega Exceptional Practice Model. The Model is designed to increase the
Orthodontic Affiliate's profitability by focusing on and improving customer
service while simultaneously reducing costs and increasing operating efficiency.
Omega seeks to affiliate with established orthodontic practices that Omega
believes have the potential for significant growth utilizing the Model. Omega
considers financial and operational factors that include the practice's gross
income, cost structure, existing treatment contracts, fee schedules, referral
rates and sources, health maintenance organization relationships, case starts,
appointments per day and average treatment times. Omega also evaluates
demographic factors that include the practice's location with respect to and the
average income levels and concentrations of families with children in the area.
The Company's strategy is to (i) enter into Affiliation Agreements and
Management Services Agreements with established orthodontic practices that meet
the Company's criteria and (ii) achieve operating efficiencies and increased
profitability for each such practice through the implementation of the Model.
The Model is designed to permit the practice to meet or exceed patient
expectations (a) offering flexible payment plans, (b) scheduling convenient
appointment times, (c) ensuring that treatment is delivered on time, (d)
updating patients and their referring dentists regularly on treatment programs
and (e) training staff to anticipate and address patient needs.
The Company will focus its initial marketing efforts on the practices of
the approximately 4,500 orthodontists over the age of 47 who the Company
believes are planning their transition to retirement. The Company believes it
can generally place a higher value on a mature practice than other potential
buyers, many of whom are recent orthodontic graduates. The Company believes that
this higher valuation, combined with consideration in the form of a combination
of cash, notes and the Company's Common Stock and the opportunity to delegate
managerial and marketing responsibilities to an experienced management team,
generally makes the Company an attractive alternative for orthodontists planning
their transition to retirement. The Company will also target younger
orthodontists who may want to merge their practices with the practice of an
orthodontist in transition or take over such a practice.
The Orthodontic Industry
General. The annual market for orthodontic treatment and services is
estimated at $3.6 billion. Based on U.S. census data that indicates that the
number of children between the ages of five and 19 will increase by
approximately 10.4 million by the year 2000, the Company expects that the growth
in this population group will result in increased demand for orthodontic
services. The orthodontic marketplace is highly fragmented and consists of
approximately 9,000 practicing orthodontists, a significant majority of whom are
sole practitioners. Omega believes that many of the orthodontists in practice
today have excess patient capacity and lack the training and resources in
management and marketing techniques to fill that capacity effectively. It is
Omega's belief that less than two percent of the orthodontic practices in the
United States are presently managed by independent, professional management
service organizations and that an opportunity exists for the Company to market
and sell its services to the orthodontic practices that are not currently
managed by such organizations.
The projected growth of the orthodontics market derives from several
demographic and economic factors. The number of patients of prime orthodontic
treatment age (12 years old) is projected to remain at a level that is 20%
higher in the ten years ending in 2002 than in the prior ten year period. Also,
although orthodontic treatment has been historically viewed as an expensive
elective, advances in practice methods and technologies have made it relatively
more affordable. As a result, orthodontic treatment is being sought by a
broadening segment of American society.
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Orthodontic Practice Dynamics. Although there exists a large and growing
demand for orthodontic services in the United States, the Company believes that
the orthodontic industry is presently ill-prepared to meet that demand.
Orthodontists, the vast majority of whom are sole practitioners, are often
highly skilled clinicians but generally are not trained in marketing themselves
as professional service providers. Most rely on referrals from other dentists
and from current or past patients. Accordingly, the Company believes that
achieving sustainable growth through referrals requires both clinical excellence
and a patient focus that emphasizes value, flexibility and efficiency.
In order to increase profitability, the Company believes that orthodontists
must improve their management and marketing techniques. Unlike many other
medical and dental specialties, orthodontics involves treatment delivered over a
period of two to three years for a fixed fee. Much of the treatment can be
provided efficiently by the orthodontist delegating certain clinical and
communications tasks to trained assistants. The Company believes that creative
management and effective delegation would allow the orthodontist to reduce
treatment costs per patient. In addition, the Company believes that the well
managed orthodontic practice would also be able to handle a larger patient base,
and, with a patient centered emphasis on the quality and efficiency of the
services it offers, should be able to build that base through professional and
patient referrals. As a result, the Company believes that an orthodontic
practice with a qualified and capable orthodontist operating under a
well-designed efficient schedule and utilizing professional management and
marketing practices is capable of enhancing its profitability.
Market for Orthodontic Practices. The value of orthodontic practices in
the United States has fallen for the past several years. The number of potential
sellers, generally orthodontists approaching retirement age, is relatively large
compared to the potential purchasers. This downward pressure on prices for
orthodontic practices results primarily from the fact that approximately 4,500,
or 50%, of the practicing orthodontists in the United States are over the age of
47. The Company believes that many are looking to make a transition out of
active practice while realizing as much value as possible from the goodwill they
have built up over their years in practice.
State laws governing the practice of dentistry and its specialties and the
shrinking number of orthodontic graduates intending to practice in the United
States have combined to limit the number of potential purchasers of orthodontic
practices. State dental practice statutes and professional codes generally
provide that only orthodontists may own, operate or control an orthodontic
practice. These restrictions have functioned to depress the market for
orthodontic practices and have inhibited the development of professional
management in the industry.
Another major factor in limiting the value of orthodontic practices is the
historic oversupply of orthodontists in the United States which has reduced the
number of recent orthodontic graduates. In addition, many of the more recent
graduates are foreign students who plan to return to their own countries. The
orthodontic graduates who seek to buy a practice generally have student loans
and limited financial resources. As a result, the average purchase price for an
orthodontic practice has fallen from roughly one year's gross revenues to
approximately 70% of that number. In addition, the selling orthodontists often
must finance the purchase by accepting a note for a significant part of the
purchase price and, in order to ensure that the practice performs well enough to
service the debt, often must stay involved in the management and marketing of
the practice.
Business Strategy
The Company's strategy has two principal components. First, the Company
identifies established orthodontic practices that it believes have potential for
significant growth utilizing the Model and offers to affiliate with and manage
those practices. Second, once an affiliate relationship is established, the
Company and the Affiliated Orthodontist (who may or may not be the selling
orthodontist) and the orthodontist's staff implement the Model in order to
achieve operating efficiencies and increase profitability for the practice.
Identifying Potential Affiliations. The Company's success will largely
depend upon the quality and quantity of orthodontic practices that it can
attract to affiliate with the Company. The Company selects practices to consider
affiliating with which are operated by orthodontists who are qualified members
of the American Association of Orthodontists. Management believes that the
Company has the resources to identify a significant number of potential
affiliates that meet the Company's criteria for affiliation. Although the
Company has been in operation for less than a year, the members of the senior
management team responsible for operations, Messrs. Schulhof, Bellavia and
Elliott, each has been involved in the orthodontic industry for 12 or more
years. Through their extensive presentations at orthodontic seminars and active
consulting practices to the orthodontic industry, the Company's senior
management team has relationships with practicing orthodontists throughout the
country. The Company has
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<PAGE>
also established a program of regular trade journal advertising, and Mr.
Schulhof, in conjunction with Messrs. Bellavia and Elliott, has written a series
of articles for orthodontic trade journals that outline the Model and its
benefits for the practicing orthodontist.
Once the Company identifies a potential affiliate, the Company conducts a
comprehensive analysis of the practice, including a thorough financial and
operational review and evaluation of staff, facilities, equipment and systems.
Initially, an estimate of the current value of the practice is calculated based
on the practice's gross income, net profit and new treatment contracts written
during the prior twelve months. The Company evaluates the practice's capacity
for improvement under the Model by analyzing (i) the number of new patient
exams, treatment starts, patients in active treatment and patients seen per day,
(ii) the fees charged for different treatments, (iii) the costs incurred by the
practice for employees, facilities, supplies and laboratory work and (iv) the
number of treatment chairs and dental and clinical assistants and the square
footage of office space employed by the practice. Also, current staff are
interviewed to determine their suitability for and commitment to the practice,
and facilities and equipment are reviewed to ensure that they will support a
larger and growing practice without significant additional cost. Finally, the
practice's current systems for starting new patients, reviewing treatment
programs, scheduling, communicating with patients and referral sources,
marketing and controlling expenses, and the cost of upgrading or replacing the
systems, are analyzed.
The Company seeks practices that have the capacity to increase their
profitability initially through improved performance on existing patient bases
rather than through immediately increasing new patient exams. The Company
generally requires that practices demonstrate the potential to grow
approximately 40% with a relatively small increase in new patient exams.
Practices that have developed strong professional referral relationships and
have attractive locations and facilities are preferred over those that rely on
mass marketing techniques and health maintenance organization relationships to
grow.
The Company also evaluates demographic factors affecting the practice.
Practices located where there are significant concentrations of families with
young children are attractive, particularly when the families have higher
incomes than the national average and these populations are stable or growing.
To date, the Company has focused its efforts on locating practices in the South
or far West of the United States. The seven Initial Orthodontic Affiliates
maintain an aggregate of eight offices, and such offices are situated in the
following locales: Goodyear and Bullhead City, Arizona; Huntington Beach and
Woodland Hills, California; Colorado Springs, Colorado; Champaign, Illinois;
Elko, Nevada and Austin, Texas.
If the practice satisfies the Company's criteria for an affiliation, an
offer is made for the practice to affiliate with the Company. The Company
outlines proposed financial terms of the affiliation, including the Company's
valuation of the practice and the amount of cash, notes and shares of the
Company's Common Stock that the Company proposes to pay to acquire the equity
interests in the MSO associated with the practice. Once the basic business terms
of the affiliation are agreed to, the parties proceed to execute an Affiliation
Agreement and the related Management Services Agreement. The Company will pay,
on average for each of the Initial Orthodontic Affiliates, a combination of
approximately $300,000 in cash and $115,000 in five year notes bearing interest
at 8.5% and issue approximately 45,000 shares of the Common Stock if valued at
the initial public offering price per share of the Common Stock. The Company
plans to enter into Affiliation Agreements and Management Services Agreements
with up to an additional 24 Orthodontic Affiliates during the 12 months
following the closing of this Offering.
Implementing the Omega Exceptional Practice Model. The Model is patient
centered and designed to promote customer service and increase the
orthodontist's productivity while permitting the orthodontist to deliver quality
orthodontic treatment. The Model focuses the orthodontic team on understanding
patient expectations and provides the orthodontic team with the training,
systems and other tools necessary to meet or exceed those expectations. The
Model will generally be implemented in a practice over a period of 12 months and
involve the active participation of the Company's professional staff, the
Affiliated Orthodontist and his or her staff and a practice facilitator assigned
by the Company to oversee the entire installation, monitor its progress and
provide follow-up support.
Customer service permeates all aspects of the Model. The Company intends to
provide a scheduling system that offers patients a wide choice of appointment
times, including night and weekend appointments. The system will also carefully
plan the Affiliated Orthodontist's time so that the patient is seen on schedule
and the work performed within the allotted appointment time. The Company intends
to offer flexible payment plans that meet
26
<PAGE>
the varying financial situations of the patients and plans to review insurance
benefits and credit issues with the patient in advance so that patients coming
to a first exam will have sufficient information at the end of that exam to
commit to the proposed plan of treatment.
The Company believes that good communication between patients and the
orthodontic team is essential to building successful relationships and
developing customer satisfaction. The Company will train the Affiliated
Orthodontist and his or her staff in interpersonal skills and communication
techniques and will carefully plan and script patient interactions so that the
orthodontic team is attuned to patient needs and can handle their questions
accurately and efficiently. The staff will be instructed to make courtesy calls
to patients after long or particularly difficult appointments to inquire about
patient comfort and answer questions. In addition, the Company will use
computerized analysis and video imaging to provide the patient with a clear
understanding of the proposed treatment, including all planned tooth and jaw
movements, and its intended results.
In order to enhance the total dental care the patient receives and to
improve the Orthodontic Affiliate's professional referral sources, the Model
also encourages frequent communication between the orthodontic team and the
referring dentist. Automated diagnostic letters that include a treatment status
report and video images of the patient will be periodically delivered to the
referring dentist. Brief seminars on current orthodontic developments are
planned from time to time at the Orthodontic Affiliate's office in order to keep
referring dentists and their staffs informed and to promote opportunities for
professional and staff interaction. By encouraging the close integration of
orthodontic and general dental services, the Model promotes improved overall
dental care for the patient and fosters strong relationships with the general
dentists for future referrals.
The Company believes that a more productive practice also serves the
interest of the orthodontic patients. In order to increase the Orthodontic
Affiliate's productivity, the Model requires the orthodontic team to establish
operational goals, such as increasing the number of treatment starts, percentage
of patients seen on time and the dollars generated per minute of chair time and
reducing the chair time required to treat different types of cases. The
orthodontic team also sets financial and quality goals for the practice. In
order to assist the orthodontic team in accomplishing these goals, the Company
will produce written policies and procedures for the orthodontic team to adopt
and follow and will either upgrade the practice's present systems or install a
new, computerized operational and financial reporting system so that progress
can be measured regularly.
The Company believes that implementation of the Model generally should be
accomplished over a 12 month period. The program will be overseen by one of the
Company's experienced practice facilitators who coordinates the efforts of the
orthodontic team and the Company. The practice facilitator will visit the
Orthodontic Affiliate monthly during this period to train the orthodontic team,
install systems and programs and audit and debug their performance. By the end
of the first 12 months, the Orthodontic Affiliate generally will have completed
the following tasks: (i) established a new staff organizational structure; (ii)
installed a communication and marketing system; (iii) installed a sophisticated
scheduling system to increase treatment productivity; (iv) instituted a new,
flexible fee and payment program; (v) installed a new or upgraded financial and
operational reporting system; (vi) conducted staff relationship training; (vii)
conducted initial and final patient surveys; and (viii) installed a patient
communication and treatment completion review program.
Agreements with Affiliated Orthodontists
The Company plans to affiliate with orthodontic practices through a series
of contractual arrangements. Initially, the Company and an Affiliated
Orthodontist will enter into an Affiliation Agreement through which the Company
will acquire the equity interests in the MSO associated with the Affiliated
Orthodontist's practice. (The Company may cause a wholly-owned subsidiary to
acquire the equity interests in the MSO to reduce adverse tax consequences in
certain cases.) The Affiliated Orthodontist, who generally practices through and
holds the practice assets in a professional corporation, will convert that
entity into a general corporation (the MSO) and create a new professional
corporation through which the Affiliated Orthodontist will continue to provide
orthodontic care (the Orthodontic Affiliate). The Company acquires the equity
interests in the MSO, and the Affiliated Orthodontist causes the Orthodontic
Affiliate to enter into a long-term Management Services Agreement with the
Company.
Through the Management Services Agreement, the Company provides practice
management and marketing services, facilities and non-professional personnel to
the Orthodontic Affiliate for a monthly fee. In order to provide for an orderly
transition in the event that the Management Services Agreement is terminated or
expires or the Affiliated Orthodontist ceases practice with the Orthodontic
Affiliate, the parties enter into a Stock Put/Call Option
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<PAGE>
and Successor Designation Agreement (the "Put/Call Agreement"). This agreement
creates for the Affiliated Orthodontist certain rights and obligations to
repurchase the practice assets held by the Company in the event that the
Management Services Agreement is terminated and grants the Company certain
rights to designate a successor orthodontist to purchase the stock of the
Orthodontic Affiliate when the Affiliated Orthodontist ceases practice through
retirement, death, disability or in other enumerated cases.
Affiliation Agreement. The Affiliation Agreement is the mechanism through
which the Company acquires the equity interests in the MSO of the Orthodontic
Affiliate, typically in exchange for a combination of cash, a promissory note
and shares of Common Stock of the Company. The completion of the acquisition
under the Affiliation Agreement is subject to certain conditions, including,
without limitation, that there has been no material adverse change to the
Orthodontic Affiliate between the time the Affiliation Agreement is signed and
the transaction is closed and that the Orthodontic Affiliate and the Company
have entered into the Management Services Agreement and the Put/Call Agreement.
The closing of the Acquisitions is further conditioned on the completion of this
Offering.
Management Services Agreement. Pursuant to the Management Services
Agreement, the Company provides the Orthodontic Affiliate comprehensive
management, financial and marketing services and facilities, equipment and
support personnel required by the Orthodontic Affiliate to operate its clinical
orthodontic practice. The Company is appointed the sole and exclusive business
manager of the Orthodontic Affiliate. In addition to providing facilities,
equipment and support services, the Company undertakes all purchasing, payment,
billing, collection and payroll functions for the Orthodontic Affiliate and
facilitates the implementation of the Model.
The Orthodontic Affiliate is solely responsible for and has complete
control and supervision over the professional aspects of its practice, as well
as the provision of all professional services, including, without limitation,
the selection of course of treatment for a patient, procedures or materials to
be used as part of such treatment and the manner in which such treatment is
carried out. The Orthodontic Affiliate has sole authority to direct the
business, professional and ethical aspects of its practice. It makes all
professional hiring decisions, renders patient care, and keeps all patient
dental records. The Orthodontic Affiliate is also responsible for entering into
an employment agreement, including non-competition provisions, with each
orthodontist engaged by it, including the Affiliated Orthodontist, and paying
all salaries for dental professionals, professional licensure and board
certification fees and professional liability insurance premiums.
The Management Services Agreement has an initial term of twenty (20) years
and is renewable for two, successive ten (10) year periods. During the initial
term and any renewal term, the Management Services Agreement may be terminated
by the Company or the Orthodontic Affiliate only for "cause," which includes the
bankruptcy of or a material default by the other party. In exchange for the
performance of its duties and obligations under the Management Services
Agreement, the Company receives a monthly management fee. The fee, which varies
somewhat from practice to practice, is generally 65% to 75% of the Orthodontic
Affiliate's gross collections for the period. From the monthly fee, the Company
pays all of its expenses in providing services to the Orthodontic Affiliate,
including, without limitation, the salaries and benefits of the Company's
employees, the costs of any consultants, corporate overhead, lease obligations
and taxes.
Put/Call Agreement. The Put/Call Agreement governs the dissolution of the
affiliation between the Orthodontic Affiliate and the Company, whether caused by
a termination or expiration of the Management Services Agreement or as a result
of the cessation of practice by the Affiliated Orthodontist. In the case of a
termination or expiration of the Management Services Agreement, the Orthodontic
Affiliate may be required to repurchase certain assets of the Company (when the
termination is initiated by the Company) or may have the right to repurchase
such assets (when the termination is initiated by the Orthodontic Affiliate).
When the Affiliated Orthodontist ceases practicing with the Orthodontic
Affiliate, whether as a result of retirement, death, disability or other reason,
the Company typically has the option to designate a successor orthodontist to
purchase the Orthodontic Affiliate from the Affiliated Orthodontist in order to
ensure that the Orthodontic Affiliate continues to operate and to perform its
obligations under the Management Services Agreement. The Company may choose not
to exercise this option where the Affiliated Orthodontist proposes to sell the
Orthodontic Affiliate to another orthodontist previously approved by the Company
to be the Affiliated Orthodontist's successor in the ownership of the
Orthodontic Affiliate.
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Competition
The business of providing orthodontic services is highly competitive in
each of the markets in which the Company operates. Each of the Company's
Orthodontic Affiliates faces competition from orthodontists who maintain single
offices or operate a single satellite office, as well as from orthodontists that
maintain group practices or operate in multiple offices. The Orthodontic
Affiliates also compete with dentists who provide certain orthodontic services.
The provision of orthodontic services by such dentists has increased in recent
years.
At this time, the Company believes that there is one publicly-traded
company, Orthodontic Centers of America, Inc. ("OCA"), actively competing in the
orthodontic practice management market and that there are several other
companies participating in the market. OCA and the other companies are
significantly larger and have greater financial, marketing and other resources
than the Company. The Company will compete with OCA and these other companies
both for expansion into new affiliate practices and for patients. Management,
however, believes the Company appeals to a different segment of the orthodontic
services market than OCA and the other companies.
In addition, there are several companies pursuing strategies similar to the
Company in other segments of the health care industry and additional companies
with similar objectives may enter the Company's markets and compete with the
Company. If a great number of competitors enter the orthodontic practice
management market, it could drive up the purchase price of orthodontic practices
adversely and affect the Company's expansion strategy. There can be no assurance
that the Company will be able to compete effectively.
Government Regulation
The field of orthodontics is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. In general, regulation of health care
companies is increasing.
Every state imposes licensing requirements on orthodontists and on
facilities and services operated by orthodontists. In addition, federal and
state laws regulate health maintenance organizations and other managed care
organizations for which orthodontists may be providers. In connection with the
entry into new markets, the Company and its Affiliated Orthodontists may become
subject to compliance with additional regulations.
The operations of Orthodontic Affiliates must meet federal, state and local
regulatory standards in the areas of safety and health. Based on its familiarity
with the operations of the Initial Orthodontic Affiliates and the activities of
the Affiliated Orthodontists, management believes that the Initial Orthodontic
Affiliates are in compliance in all material respects with all applicable
federal, state and local laws and regulations.
The laws of many states prohibit orthodontists from splitting fees with
non-orthodontists and prohibit non-orthodontic entities (such as the Company)
from practicing dentistry, including orthodontics, and from employing
orthodontists or, in certain circumstances, orthodontic assistants. The laws of
some states prohibit advertising of orthodontic services under a trade or
corporate name and require that all advertising be in the name of the
orthodontist. A number of states also regulate the content of advertisement of
orthodontic services and the use of promotional gift items. A number of states
limit the ability of a non-licensed dentist or non-orthodontist to own equipment
or offices used in an orthodontic practice. Some of these states allow leasing
of equipment and office space to an orthodontic practice, under a bona-fide
lease, if the equipment and office remain in the complete care and custody of
the orthodontist. Management believes, based on its familiarity with the
operations of the Orthodontic Affiliates, the activities of the Company's
Affiliated Orthodontists and applicable regulations, that the Company's current
and planned activities do not constitute the prohibited practices contemplated
by these statutes and regulations. There can be no assurance, however, that
future interpretations of such laws, or the enactment of more stringent laws,
will not require structural and organizational modifications of the Company's
existing relationships with its Affiliated Orthodontists or the operation of the
Orthodontic Affiliates. In addition, statutes in some states could restrict
expansion of Company operations in those jurisdictions.
The Company regularly monitors developments in laws and regulations
relating to dentistry. The Company may be required to modify its agreements,
operations and marketing from time to time in response to changes in the
business and regulatory environment. The Company plans to structure all of its
agreements, operations and marketing in accordance with applicable law, although
there can be no assurance that its arrangements will not be successfully
challenged or that required changes may not affect operations or profitability.
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Employees
At March 31, 1997, the Company had five employees and utilized ten
independent contractors to assist with certain corporate functions and to
provide consulting services to orthodontic practices. After consummation of the
Acquisitions, the Company expects to employ approximately 45 employees,
approximately evenly split between clinical and clerical employees. None of the
Company's employees are represented by a collective bargaining agreement. The
Company considers its relationship with its employees to be satisfactory.
Facilities
The Company does not hold any leases for corporate facilities. In
connection with consummating the Acquisitions, the Company expects to lease an
average of 1,800 square feet of office space for each of the seven Initial
Orthodontic Affiliates. The Company expects that the typical lease for office
space will be for a term of approximately five years and generally provides for
renewal options for additional years.
Following completion of this Offering, the Company intends to establish and
staff an office in Massachusetts for its financial operations. The Company
expects to lease office space and maintain its financial records in
Massachusetts.
Insurance
The provision of orthodontic services entails an inherent risk of
professional malpractice and other similar claims. Although the Company does not
influence or control the practice of dentistry by the Affiliated Orthodontists
or have responsibility for compliance with certain regulatory and other
requirements directly applicable to Orthodontic Affiliates, the contractual
relationship between the Company and the Orthodontic Affiliates may subject the
Company to medical malpractice actions. There can be no assurance that claims,
suits or complaints relating to services and products provided by Orthodontic
Affiliates will not be asserted against the Company in the future. The
availability and cost of professional liability insurance has been affected by
various factors, many of which are beyond the control of the Company. The cost
of such insurance to the Orthodontic Affiliates may have an adverse effect on
the Company's operations.
The Management Services Agreements will require the Orthodontic Affiliates
to maintain, at their expense, professional liability insurance for themselves
and each orthodontist employed by or otherwise providing orthodontic services
for the Orthodontic Affiliate in the minimum amount of $500,000 per occurrence
and $1,000,000 in the aggregate. In addition, each Orthodontic Affiliate will
undertake to comply with all applicable regulations and requirements, and the
Company will be indemnified under the Management Services Agreements for claims
against the Company arising in connection with actions by the Orthodontic
Affiliates. The Company has applied for general liability insurance for itself
and will require that it be named as an additional insured party on the
professional liability insurance policies of the Orthodontic Affiliates pursuant
to the Management Services Agreement. The Company does not maintain professional
liability insurance for itself.
The Company maintains other insurance coverages including property,
workers' compensation and directors and officers liability insurance which
Management considers to be adequate for the size of the Company and the nature
of its business.
Litigation
The Company does not have pending any litigation that, separately or in the
aggregate, if adversely determined, would have a material adverse effect on the
Company. The Company and its Orthodontic Affiliates may, from time to time, be
party to litigation or administrative proceedings which arise in the normal
course of business.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Robert J. Schulhof ......... 55 President, Chief Executive Officer, Treasurer and Director
Dr. Dean C. Bellavia ...... 53 Director of Affiliate Programs (1) and Director
Edward M. Mulherin ......... 37 Chief Financial Officer
Floyd V. Elliott ......... 54 Director of Professional Relations and Staff
Development (1) and Director
Dr. C. Joel Glovsky ...... 64 Chairman of the Board of Directors and Secretary
John J. Clarke, Jr. ...... 54 Director
Dr. David T. Grove ......... 56 Director
</TABLE>
- ----------------
(1) Dr. Bellavia and Mr. Elliott will assume their respective positions as
employees of the Company upon the closing of this Offering. See
"--Employment Agreements."
The Company's Board of Directors is comprised of six members, each of whom
serves for one year. Each year the stockholders will elect Directors to serve
for the following year. The Executive Officers are elected annually and serve at
the discretion of the Board of Directors.
Robert J. Schulhof, the Company's founder, has been the President and Chief
Executive Officer of the Company since its formation in August 1996. In 1995,
Mr. Schulhof founded OMEGA, LLC, a principal stockholder of the Company, and is
the sole manager of OMEGA, LLC. From 1990 to 1994, Mr. Schulhof was the Chief
Executive Officer of Solutions Providers, a California general partnership and a
firm that offered integrated computer technology and practice management
consulting services to the orthodontic industry. Mr. Schulhof has been involved
in the orthodontic industry for over twenty five years. He held senior
management positions with Rocky Mountain Data Systems and its subsidiary, The
Millenium Society, from 1970 to 1981. These entities were early entrants in
computerized diagnostics and practice management for the orthodontic industry.
Mr. Schulhof has authored or co-authored over 35 articles on orthodontic
diagnosis, treatment and management. He holds a masters degree in Mathematical
Statistics and Probability from the University of California at Los Angeles.
Dean C. Bellavia, a co-founder of the Company, has been the Director of
Affiliates Programs since its formation in August 1996. Dr. Bellavia operates
his own orthodontic management consulting firm which he founded in 1974. Dr.
Bellavia has published numerous articles and three books in the orthodontic
field. He holds a Ph.D in Bio-Engineering from Carnegie Mellon University.
Edward M. Mulherin has provided consulting services as the part-time Chief
Financial Officer of the Company since October 1996. Such services have been
provided through LMG, a firm in which Mr. Mulherin is a principal stockholder
and with which he has been associated since 1991. Mr. Mulherin is a certified
public accountant and holds a B.S. in Accounting from Boston College and a J.D.
from Suffolk University Law School.
Floyd V. ("Sonny") Elliott joined the Company's Board of Directors in
December 1996 and will become the Company's Director of Professional Relations
and Staff Development upon the closing of this Offering. Mr. Elliott is the
President of Elliott Enterprises, a consulting firm serving the orthodontic
industry which he founded in 1991. Prior to founding Elliott Enterprises, Mr.
Elliott was president of Paradigm Practice Management, a management consulting
firm working primarily with orthodontic practices.
C. Joel Glovsky, a co-founder of the Company, has served as the Chairman of
the Board of Directors and Secretary of the Company since its formation in
August 1996. Dr. Glovsky has been engaged in the private practice of
orthodontics since 1961. He is a graduate of the dental school of Tufts
University and served as Assistant Clinical Professor there for 15 years. Dr.
Glovsky is a diplomat of the American Board of Orthodontics. In October 1989,
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<PAGE>
Dr. Glovsky co-founded The Standish Care Company, an assisted living company,
and he served on the Board of Directors of Standish from 1989 to 1994.
John J. Clarke, Jr. was elected to the Board of Directors of the Company in
March 1997. Since 1971, Mr. Clarke has been a principal in Baldwin & Clarke
Companies, a diversified financial services organization that provides
investment banking and other financial advisory services. He is a director of
Centerpoint Bank, a wholly-owned subsidiary of Community Bankshares, Inc., a
bank holding company in Concord, New Hampshire. Mr. Clarke holds a B.A. from
Northeastern University.
David T. Grove has served on the Board of Directors of the Company since
its inception in August 1996. Dr. Grove has been in the private practice of
orthodontics in Nevada since 1971. Dr. Grove holds a dental degree from the
University of Louisville, and a Masters degree in education from the University
of Southern California. He served as Clinic Director for two years in the
Orthodontics Department at the University of California at San Francisco. He is
the Chairman of the Company's Clinical Advisory Board.
Board Committees
The Board of Directors has established an Audit Committee and a
Compensation Committee.
Audit Committee. The Audit Committee has the responsibility for reviewing
and supervising the financial controls of the Company. The Audit Committee makes
recommendations to the Board of Directors of the Company with respect to the
Company's financial statements and the appointment of independent auditors,
reviews significant audit and accounting policies and practices, meets with the
Company's auditors concerning, among other things, the scope of audits and
reports, and reviews the performance of overall accounting and financial
controls of the Company. The Audit Committee consists of Dr. Glovsky and Mr.
Clarke.
Compensation Committee. The Compensation Committee has the responsibility
for reviewing the performance of the officers of the Company and recommending to
the Board of Directors of the Company salary and bonus amounts for all officers
of the Company, subject to the terms of existing employment agreements. The
Compensation Committee also has the responsibility for oversight and
administration of the Company's stock and other compensatory plans. The
Compensation Committee consists of Dr. Glovsky, Dr. Grove and Mr. Clarke.
Director Compensation
Members of the Board will receive a fee of $500 for each Board meeting
attended, and members of the Committees will receive a fee of $250 for each
committee meeting attended. Board members are reimbursed for their out-of-pocket
expenses for each meeting attended.
Clinical Advisory Board
Following this Offering, the Company will establish a Clinical Advisory
Board that will consist of one orthodontist from each Orthodontic Affiliate as
well as experts in the orthodontic field. On an individual basis, members of the
Clinical Advisory Board will advise the Company's management and employees on
matters relating to policies affecting clinical practice issues. In addition,
the Company's entire Clinical Advisory Board plans to meet at least twice a year
to review and discuss the Company's progress.
Dr. Grove will be the initial Chairman of the Clinical Advisory Board.
Other members of the Clinical Advisory Board are expected to be: Dr. Michael
Churosh, Dr. Scott E. Feldman, Dr. J. Keith Hilliard, Dr. Robert M. Ricketts,
Dr. Theodore G. Saydyk, Jr., Dr. Robert R. Schmisseur, Dr. Clark E. Schneekluth
and Dr. Jeff S. Zapalac.
Consultants
Omega has entered into a consulting agreement with Dr. Glovsky, the
Chairman of the Board of Directors of the Company, which will become effective
upon the closing of this Offering. The initial term of the agreement is three
years, and such term will be extended automatically on the third anniversary
date of effectiveness and each anniversary date thereafter for an additional
year, unless either party gives notice of termination prior to such extension.
Dr. Glovsky will provide consulting services to the Company in connection with
identifying orthodontic practices with potential to become Orthodontic
Affiliates and negotiating and closing Affiliation Agreements with such
practices. He will be paid monthly according to the following fee schedule: a
one time fee of $2,500 for each orthodontic practice that becomes an Orthodontic
Affiliate (other than the Initial Orthodontic Affiliates) in that month and,
beginning in the first month after the Company has an aggregate of 15
Orthodontic Affiliates (including
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<PAGE>
the Initial Orthodontic Affiliates), $5,000 per month, up to a maximum fee of
$60,000 in the first 12 months after the agreement becomes effective. At the end
of the first 12 months, the Company will review the workload of Dr. Glovsky
under the agreement and propose a revised fee schedule for the remainder of the
term of the agreement. If the parties cannot agree on a revised fee schedule,
Dr. Glovsky shall continue to receive fees based upon the initial fee schedule.
Omega has also entered into a consulting agreement with LMG which became
effective on May 1, 1997 and provides that LMG shall render accounting and
financial consulting services to the Company and shall make Mr. Mulherin, a
principal stockholder of LMG, available to serve as the Company's Chief
Financial Officer. The initial term of the agreement is three years, and such
term will be extended automatically on May 1, 2000 and on each May 1 thereafter
for an additional year, unless either party gives notice of termination prior to
such extension. LMG will be paid a monthly fee of $5,000 until the later of
November 1, 1997 or the first month after the Company has an aggregate of 15
Orthodontic Affiliates (including the Initial Orthodontic Affiliates) and a
monthly fee of $10,000 thereafter for the term of the agreement. In addition,
the Company has granted LMG a non-qualified stock option under the Stock Option
Plan to acquire 150,000 shares of the Company's Common Stock at an exercise
price equal to the initial public offering price per share of the Common Stock.
The Company has also agreed to indemnify LMG against certain liabilities that
may arise in connection with the services to be rendered by LMG under the
agreement.
Executive Compensation
No officer or director salary and bonus exceeded $100,000 during the period
from August 30, 1996 (inception) to December 31, 1996. The Company did not grant
any restricted stock awards, options or stock appreciation rights or make any
long-term incentive plan payouts during such period, nor did any of the
executive officers own options or stock appreciation rights during the period.
The Company has no defined benefit or actuarial plans covering employees of the
Company.
The Company has obtained key man life insurance providing coverage for the
Company on the life of Mr. Schulhof in the amount of $1.0 million.
Employment Agreements
Omega has entered into employment agreements (individually, an "Employment
Agreement" and collectively, the "Employment Agreements") with each of Mr.
Schulhof, Dr. Bellavia and Mr. Elliott (collectively, the "Executives"). Mr.
Schulhof's Employment Agreement became effective January 1, 1997 and provides
that he is employed as the President and Chief Executive Officer of the Company.
The initial term of Mr. Schulhof's Employment Agreement is three years, and such
term will be extended automatically on January 1, 2000 and on each January 1
thereafter for an additional year, unless Mr. Schulhof receives notice of
termination prior to such extension. Mr. Schulhof is paid an annual base salary
of $120,000, which amount is subject to annual review, and bonuses, the amounts
of which are determined by the Compensation Committee. Mr. Schulhof also has the
use of a company car or, at his election, will be paid an automobile allowance
of $700 per month.
Dr. Bellavia's Employment Agreement will become effective upon the closing
of this Offering and provides that he will be employed as the Director of
Affiliate Programs of the Company. The initial term of Dr. Bellavia's Employment
Agreement is three years, and such term will be extended automatically on the
third anniversary date of the effectiveness and on each anniversary date
thereafter for an additional year, unless either party receives notice of
termination prior to such extension. Dr. Bellavia initially will be paid monthly
according to the following fee schedule: (i) a one time fee of $7,500 for each
Orthodontic Affiliate (other than the Initial Orthodontic Affiliates) in which
he initiates the implementation of the Model in that month and (ii) a fee of
$208.33 for each Orthodontic Affiliate operating under the Model in that month.
He will receive a monthly advance against these fees of $10,000, which advance
will be reviewed quarterly by the Company and, to the extent it exceeds the fees
earned for that quarter, the advance amount for the next quarter will be reduced
by an equal amount. Beginning in the first month after the Company has 15
Orthodontic Affiliates (including the Initial Orthodontic Affiliates), the
Company shall cease paying Dr. Bellavia according to this fee schedule.
Thereafter, Dr. Bellavia's Employment Agreement provides for a base salary of
$10,000 per month, which amount is subject to annual review, and bonuses, the
amounts of which are determined by the Compensation Committee.
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<PAGE>
Mr. Elliott's Employment Agreement will become effective upon the closing
of this Offering and provides that he will be employed as the Director of
Professional Relations and Staff Development of the Company. The initial term of
Mr. Elliott's Employment Agreement is three years, and such term will be
extended automatically on the third anniversary date of the effectiveness and on
each anniversary date thereafter for an additional year, unless either party
receives notice of termination prior to such extension. Mr. Elliott initially
will be paid monthly according to the following fee schedule: (i) a one time fee
of $2,500 for each orthodontic practice that becomes an Orthodontic Affiliate
(other than the Initial Orthodontic Affiliates) in that month, (ii) a fee of
$1,250 per day per seminar conducted by Mr. Elliott for an Orthodontic Affiliate
in that month and (iii) a fee of $300 for each Orthodontic Affiliate to which
Mr. Elliott provides consulting services in that month. He will receive a
monthly advance against these fees of $10,000, which advance will be reviewed
quarterly by the Company and, to the extent it exceeds the fees earned for that
quarter, the advance amount for the next quarter will be reduced by an equal
amount. Beginning in the first month after the Company has an aggregate of 15
Orthodontic Affiliates (including the Initial Orthodontic Affiliates), the
Company shall cease paying Mr. Elliott according to this fee schedule.
Thereafter, Mr. Elliott's Employment Agreement provides for a base salary of
$10,000 per month, which amount is subject to annual review, and bonuses, the
amounts of which are determined by the Compensation Committee.
The Employment Agreements may be terminated by the Company or the
respective Executives without cause with 90 days' prior written notice. Pursuant
to the terms of the Employment Agreements, each of the Executives has agreed not
to disclose the Company's confidential information and not to compete against
the Company during the term of his Employment Agreement and for a period of one
year thereafter, with certain exceptions.
If the Executive suffers a "termination other than for cause" (as defined
in the Employment Agreements), including such a termination within 24 months
after a "change in control" (as defined in the Employment Agreements), the
Executive is entitled to receive his accrued salary, earned bonus compensation,
vested deferred compensation (other than plan benefits which will be payable in
accordance with the applicable plan) and other benefits through the date of
termination and severance payments of salary (at the rate payable at the time of
such termination) for the longer of 12 months or the remaining term of the
Employment Agreement. Each of the Executives may elect to receive from the
Company a lump sum severance payment equal to the present value of the flow of
cash from the severance payments of salary. In addition, each Executive is
entitled to an accelerated vesting of any awards granted to the Executive under
the Stock Option Plan. Notwithstanding the foregoing, the Company is not
required to pay any amount which is not deductible for federal income tax
purposes.
If the Executive is terminated for "cause" (as defined in the Employment
Agreements), he is entitled to receive his accrued salary, earned bonus
compensation, vested deferred compensation (other than plan benefits which will
be payable in accordance with the applicable plan) and other benefits through
the date of termination, but shall receive no other severance benefits. Each of
the Executives may also be terminated if he dies or becomes disabled for a
period of 12 consecutive months. In the event of termination due to death or
disability, the Executive (or his estate) shall receive the same payments, but
no additional severance, except that, if the Executive becomes disabled, the
Company will maintain his insurance benefits for the remaining term of his
Employment Agreement.
Incentive Stock Plan
Effective as of January 31, 1997, the Company adopted the Omega
Orthodontics Incentive Stock Plan (the "Stock Option Plan"). The Company had
reserved 300,000 of the authorized shares of Common Stock for issuance under the
Stock Option Plan. On April 28, 1997, the Stock Option Plan was amended to
increase the number of shares of Common Stock authorized for issuance under the
Stock Option Plan to 450,000. Unless terminated earlier, the Stock Option Plan
will terminate on January 30, 2007.
Plan Administration; Eligibility. The Stock Option Plan is administered by
a committee consisting solely of two or more non-employee Directors (the
"Committee").
The Committee has full power to select from among the persons eligible for
awards the individuals to whom awards will be granted, to make any combination
of awards to participants and to determine the specific terms of each award,
subject to the provisions of the Stock Option Plan. Persons eligible to
participate in the Stock Option Plan generally will be those employees and
directors of the Company and consultants to the Company who are responsible for
or contribute to the management, growth or profitability of the Company, as
selected from time to time by the Committee.
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<PAGE>
Stock Options Granted to Employees. The Stock Option Plan permits the
granting of both incentive stock options ("Incentive Options") and non-qualified
stock options ("Non-Qualified Options") to Company employees. The exercise price
of each option shall be determined by the Committee but shall not be less than
100% of the fair market value for the shares on the date of grant. The term of
each option shall be fixed by the Committee and may not exceed 10 years from the
date of grant. The Committee shall determine at what time or times each option
may be exercised and, subject to the provisions of the Stock Option Plan, the
period of time, if any, after death, disability or termination of employment
during which options may be exercised. Options may also be made exercisable in
installments. Upon exercise of options, the option exercise price must be paid
in full (i) in cash or by certified or bank check or postal or express money
order, (ii) by delivery of shares of Common Stock valued at their fair market
value on the exercise date or (iii) partially in cash and partially in stock. To
qualify as Incentive Options, options must meet additional Federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one year, and a shorter term and
higher minimum exercise price in the case of certain large stockholders.
Stock Options Granted to Non-Employee Directors and Consultants. The Stock
Option Plan permits the granting of Non-Qualified Options to non-employee
Directors of the Company and to consultants to the Company. The exercise price
of such Non-Qualified Options shall be determined by the Committee and shall not
be less than the fair market value of the Common Stock on the date of grant. The
term of each option shall be fixed by the Committee and may not exceed 10 years
from the date of grant. The Committee shall determine at what time or times each
option may be exercised and, subject to the provisions of the Stock Option Plan,
the period of time, if any, after death, disability or termination of employment
during which options may be exercised. Options may also be made exercisable in
installments. Upon exercise of options, the option exercise price must be paid
in full (i) in cash or by certified or bank check or postal or express money
order, (ii) by delivery of shares of Common Stock valued at their fair market
value on the exercise date or (iii) partially in cash and partially in stock.
Option Reloads. At the discretion of the Committee, options granted under
the Stock Option Plan to employees, directors or consultants may include a
so-called "reload" feature pursuant to which a participant exercising an option
by delivery of shares of Common Stock may be automatically granted an additional
option to purchase that number of shares equal to the number delivered to
exercise the original option.
Stock Appreciation Rights. At the discretion of the Committee, options
granted under the Stock Option Plan to employees, directors or consultants may
include stock appreciation rights. Such stock appreciation rights are only
exercisable with their related stock options. Upon exercise of a stock
appreciation right a grantee shall be entitled to receive in cash or stock the
difference between the current fair market value of Common Stock and the
original exercise price of the underlying stock option. Stock appreciation
rights not exercised with the exercise of the underlying option will
automatically terminate.
Restricted Stock and Unrestricted Stock. The Committee may also award
shares of Common Stock subject to such conditions and restrictions as the
Committee may determine ("Restricted Stock"). The purchase price, if any, of
shares of Restricted Stock shall be determined by the Committee. Recipients of
Restricted Stock must enter into a Restricted Stock award agreement with the
Company, in such form as the Committee determines, setting forth the
restrictions to which the shares are subject and the date on which the
restrictions will lapse and the shares become vested. The Committee may at any
time waive such restrictions or accelerate such dates. If a participant who
holds shares of Restricted Stock terminates the relationship with the Company
for any reason (including death) prior to the vesting of such Restricted Stock,
the Company shall have the right to require the forfeiture of such Restricted
Stock in exchange for the amount, if any, which the participant paid for them.
Prior to the vesting of Restricted Stock, the participant will have all rights
of a stockholder with respect to the shares, including voting and dividend
rights, subject only to the conditions and restrictions set forth in the Stock
Option Plan or in the Restricted Stock award agreement.
The Committee may also grant shares (at no cost or for a purchase price
determined by the Committee) which are free from any restrictions under the
Stock Option Plan ("Unrestricted Stock"). Unrestricted Stock may be issued in
recognition of past services or other valid consideration.
Performance Share Awards. The Committee may also grant awards ("Performance
Shares") entitling the recipient to receive shares of Common Stock upon the
achievement of individual or Company performance goals and such other conditions
as the Committee shall determine. A recipient of a Performance Share award must
enter
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<PAGE>
into an agreement setting forth the applicable conditions, as determined by the
Committee. Performance Shares may be awarded independently or in connection with
stock options or other awards under the Stock Option Plan.
Adjustments for Stock Dividends, Mergers, Etc. The Committee shall make
appropriate adjustments in connection with outstanding awards to reflect stock
dividends, stock splits and similar events. In the event of a merger,
liquidation or similar event, the Committee in its discretion may provide for
substitution or adjustments.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the Stock Option Plan. Moreover, no such amendment, unless approved
by the stockholders of the Company, shall be effective if it would cause the
Stock Option Plan to fail to satisfy any then applicable incentive stock option
rules under Federal tax law or applicable requirements of Rule 16b-3 under the
Securities and Exchange Act of 1934, as amended. Currently, the incentive stock
option regulations would require stockholder approval for an increase in the
maximum number of shares issuable pursuant to Incentive Options under the Stock
Option Plan, a modification in eligibility requirements under the Stock Option
Plan, a material increase in the benefits accruing to participants under the
Stock Option Plan or a material modification of the eligibility requirements
under the Stock Option Plan.
At April 28, 1997, options with respect to 350,000 shares of Common Stock
have been granted to Dr. Bellavia, Mr. Elliott and LMG in the amounts of 50,000,
150,000 and 150,000 shares, respectively, at an exercise price equal to the
intial public offering price for the shares and 100,000 shares of Common Stock
were reserved for issuance pursuant to future grants under the Stock Option
Plan. The options granted to Mr. Elliott and LMG vest in three equal
installments on each of the first three anniversaries of the date of grant, and
the options granted to Dr. Bellavia vest fully on the first anniversary of the
date of grant.
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<PAGE>
CERTAIN TRANSACTIONS
On August 31, 1996, Omega acquired OMEGA, LLC's orthodontic practice
management business and certain related assets, management contracts and
practice affiliation agreements in exchange for 1,050,000 shares of Omega's
Common Stock. Messrs. Schulhof, Glovsky, Grove and Bellavia, all of the then
directors of Omega, held 330 (27.7%), 75 (6.3%), 150 (12.6%) and 100 (8.4%) of
the membership points of OMEGA, LLC, respectively, at the time of the
transaction, and Mr. Schulhof was the sole manager of OMEGA, LLC.
In connection with the acquisition by Omega of OMEGA, LLC's orthodontic
practice management business, Omega assumed OMEGA, LLC's rights and obligations
under an agreement with Dr. Glovsky, the Chairman of the Board of the Company,
and Mayflower, a private banking firm, whereby Dr. Glovsky and Mayflower (the
Consultants) agreed to provide certain consulting services to Omega. Under the
terms of the agreement, as amended and restated, 225,000 shares of Omega's
Common Stock were issued to each of the Consultants to be held in escrow pending
fulfillment of their consulting obligations to Omega. All of such shares were
released from the escrow on April 28, 1997 and delivered to the Consultants. In
addition, Omega agreed to make cash payments to the Consultants aggregating
$842,000 over three years beginning in January 1998. The Company is obligated
to make quarterly payments to each of Dr. Glovsky and Mayflower on January 1,
April 1, June 1 and September 1, 1998, 1999 and 2000 of $67,500, $27,000 and
$10,800, respectively. Mayflower is a stockholder of the Company and holds 75
membership points of OMEGA, LLC, the Company's principal stockholder. See
"Principal Stockholders."
During September 1996, Drs. Glovsky and Bellavia, both directors of the
Company and more than 5% owners of OMEGA, LLC, the Company's principal
stockholder, purchased $25,000 and $50,000, respectively, of the Bridge Notes
and received 5,000 and 10,000 shares, respectively, of the Company's Common
Stock in connection therewith. In April, 1997, Dr. Glovsky and Dr. Grove, also a
director of the Company, purchased an additional $5,000 and $25,000 of Bridge
Notes, respectively, and received an additional 1,000 and 5,000 shares of the
Common Stock, respectively, in connection therewith. The Company expects to
repay all of its Bridge Notes from the net proceeds of this Offering, including
the Bridge Notes held by Drs. Glovsky, Bellavia and Grove. See "Use of
Proceeds."
The Company has entered into an Affiliation Agreement with Dr. Grove which
the Company expects to close concurrently with the closing of this Offering.
Pursuant to its agreement with Dr. Grove, a director of the Company, the Company
will acquire certain assets of Dr. Grove's orthodontic practice in exchange for
a cash payment of $333,567, a five year note in the original principal amount of
$333,567 bearing interest at 8.5% per year and amortizing over the last four
years of the term and 55,595 shares of the Company's Common Stock.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 30, 1997 and as adjusted to
reflect the consummation of this Offering and the Acquisitions, by (i) each
person (or group of affiliated persons) who is known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of the Common Stock,
(ii) each of the Directors and Executive Officers of the Company and (iii) all
Directors and Executive Officers of the Company as a group. The beneficial
ownership information described and set forth below is based on information
furnished by the specified persons and is determined in accordance with Rule
13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
<TABLE>
<CAPTION>
Percentage of Shares Beneficially Owned (2)
---------------------------------------------
Number of Shares
Name and Address of Beneficially Before After
Beneficial Owner (1) Owned Offering Offering
- ------------------------------------------------ ------------------ ----------- ----------
<S> <C> <C> <C>
The Orthodontic Management
Effectiveness Group of America, LLC (3)
3621 Silver Spur Lane
Acton, CA 93510 .............................. 1,050,000 62.3% 27.6%
Robert J. Schulhof (4)
3621 Silver Spur Lane
Acton, CA 93510 .............................. 1,050,000 62.3% 27.6%
C. Joel Glovsky (5)
44 Grey Lane
Lynnfield, MA 01940 ........................ 231,000 13.7% 6.1%
The Mayflower Group Ltd
393 Commonwealth Ave.
Boston, MA 02115 .............................. 225,000 13.4% 5.9%
David T. Grove (6)
581 12th Street
Elko, NV 89801 .............................. 60,595 3.6% 1.6%
Dean C. Bellavia
44 Capen Boulevard
Buffalo, NY 14214 ........................... 10,000 * *
Edward M. Mulherin
63 Chatham Street
Boston, MA 02109 ........................... 10,000 * *
Floyd V. Elliot
2415 Eagle Rock
Houston, TX 77080 ........................... -- -- --
John J. Clarke, Jr.
116B South River Road
Bedford, NH 03110 ........................... -- -- --
All directors and executive officers as a group
(7 persons) (7) 1,361,595 80.8% 35.8%
</TABLE>
- ----------------
* Represents less than 1%.
(1) Except as otherwise indicated, the Company believes that the persons named
in the table above, based upon information furnished by such persons, have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable.
(2) The percentages shown are based on 1,685,000 shares of Common Stock
outstanding as of April 30, 1997 and 3,800,655 shares of Common Stock
expected to be outstanding upon completion of the Offering and consummation
of the Acquisitions.
(3) OMEGA, LLC is the record and beneficial owner of 1,050,000 shares of Common
Stock which it acquired from Omega on August 31, 1996 in exchange for
OMEGA, LLC's orthodontic practice management business
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<PAGE>
and certain related assets and agreements. See "Certain Transactions." Mr.
Schulhof holds 330 membership points in OMEGA, LLC, or 27.7% of the voting
power of OMEGA, LLC, and is the sole manager of OMEGA, LLC with authority
to vote and dispose of shares of the Common Stock of the Company held by
OMEGA, LLC.
(4) Includes the 1,050,000 shares held by OMEGA, LLC which Mr. Schulhof may be
deemed to beneficially own as the principal membership pointholder and the
sole manager of OMEGA, LLC.
(5) Includes 6,000 shares held of record by Dr. Glovsky's Individual Retirement
Account.
(6) Includes 55,595 shares of Common Stock which Dr. Grove will receive
concurrently with the closing of this Offering in connection with the
consummation of the Acquisitions. See "Certain Transactions."
(7) See Notes 4, 5 and 6.
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<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 9,500,000 shares of Common Stock, $.01
par value per share, and 500,000 shares of preferred stock, $.01 par value per
share (the "Preferred Stock"). As of April 30, 1997, 1,685,000 shares of Common
Stock were issued and outstanding and no shares of Preferred Stock were
outstanding. Upon consummation of this Offering, an aggregate of 3,800,655
shares of Common Stock will be outstanding and no shares of Preferred Stock will
be outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Stockholders have no right to cumulate
their votes in the election of directors. Accordingly, holders of a majority of
the shares of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of Common Stock are
entitled to receive dividends and other distributions when, as and if declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, including all
distributions to holders of Preferred Stock having a liquidation preference over
the Common Stock.
Preferred Stock
The Board of Directors has the authority, without any further vote or
action of the stockholders of the Company, to issue shares of the Preferred
Stock in one or more series and to determine the relative rights and preferences
of any such shares, including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund terms and the number
of shares constituting any series or the designation of such series without any
further vote or action by the stockholders. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
Warrants
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (the "Warrant Agent"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time commencing , 1997 [six (6)
months after the date of this Prospectus] until , 2002 [five years
after the date of this Prospectus], one share of Common Stock at a price of
$ per share [110% of the initial public offering price per share of
Common Stock], subject to adjustment in accordance with the anti-
dilution and other provisions referred to below. The holder of any Warrant may
exercise such Warrant by surrendering the certificate representing the Warrant
to the Warrant Agent, with the subscription form thereon properly completed and
executed, together with payment of the exercise price. No fractional shares will
be issued upon the exercise of the Warrants. The exercise price of the Warrants
bears no relationship to any objective criteria of value and should in no event
be regarded as an indication of any future market price of the Securities
offered hereby.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock or the sale by the Company
of its Common Stock or other securities convertible into Common Stock at a price
below the exercise price of the Warrants. Additionally, an adjustment would be
made in the case of a reclassification or exchange of Common Stock,
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company,
in order to enable warrantholders to acquire the kind and number of shares of
stock or other securities or property receivable in such
40
<PAGE>
event by a holder of the number of shares of Common Stock that might otherwise
have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing , 1998 [eighteen (18)
months after the date of this Prospectus], the Warrants are subject to
redemption by the Company, in whole but not in part, at $.10 per Warrant on
thirty (30) days' prior written notice to the warrantholders, if the average
closing bid price of the Common Stock as reported on Nasdaq equals or exceeds
$ per share [200% of the initial public offering price per share of
Common Stock] for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. In the event the Company exercises the right to redeem
the Warrants, such Warrants will be exercisable until the close of business on
the business day immediately preceding the date for redemption fixed in such
notice. If any Warrant called for redemption is not exercised by such time, it
will cease to be exercisable and the holder will be entitled only to the
redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants will become wholly void and of no value.
If a market for the Warrants develops, the holder may sell the Warrants instead
of exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Warrantholder Not a Stockholder. The Warrants do not confer upon holders
thereof any voting, dividend, or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
(other than as provided in the preceding sentence) and the expiration date with
respect to any Warrant requires the consent of two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be no assurance that it will be able to do
so.
The Warrants are separately transferable immediately upon issuance.
Although the Securities will not be knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, investors in such jurisdictions may purchase Warrants in the secondary
market or investors may move to jurisdictions in which the shares underlying the
Warrants are not so registered or qualified during the period that the Warrants
are exercisable. In such event, the Company would be unable to issue shares to
those persons desiring to exercise their Warrants, and holders of Warrants would
have no choice but to attempt to sell the Warrants in a jurisdiction where such
sale is permissible or allow them to expire unexercised.
Limitations on Liability of Officers and Directors
The Company's Certificate of Incorporation provides for indemnification of
the officers and directors of the Company to the fullest extent permitted by
Delaware law, including some instances in which indemnification is otherwise
discretionary under Delaware law. The Certificate of Incorporation contains
provisions that eliminate the personal liability of the Company's directors for
monetary damages resulting from breaches of their fiduciary duty (other than
liability for breaches of the director's duty of loyalty to the Company or its
stockholders), for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under Section
174 of the Delaware General Corporation Law, or for any transaction from which
the director derived an improper personal benefit. The Company believes that
these provisions are essential to attracting and retaining qualified persons as
officers and directors.
41
<PAGE>
Presently there is no pending litigation or proceeding involving a director
or officer of the Company as to which indemnification is being sought, nor is
the Company aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
Registration Rights
The holders of the 175,000 shares of Common Stock issued in connection with
the sale of the Bridge Notes are entitled to certain rights with respect to the
registration of such shares under the Securities Act. In the event that the
Company proposes to register any of its securities under the Securities Act,
except in connection with this Offering or pursuant to a registration statement
on Forms S-4 or S-8, or similar or successor forms, such holders are entitled to
include such shares of Common Stock in such registration, subject to the right
of the underwriters of any such offering to limit the number of shares included
in such registration. The holders of at least 25% of such shares have the
additional right to require the Company to prepare and file a registration
statement under the Securities Act on Form S-3, or any successor form relating
to secondary offerings, at any time after the Company becomes eligible to file a
registration statement on Form S-3. The Company is not currently eligible to
file a registration statement on Form S-3 and will not be so eligible until it
has a security registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and has timely filed all reports and
proxy material required to be filed pursuant to Sections 13, 14 and 15(d) of the
Exchange Act for at least the 12 calendar months preceding the filing of such
registration statement on Form S-3. The Company is required to use its best
efforts to effect the registrations described above and is generally required to
bear the expenses of all such registrations.
Anti-takeover Provisions
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined in Section 203, generally, as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date 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
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at last 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 right 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 is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of 66 2/3% of the outstanding voting stock of the corporation not owned
by the interested stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock and the
Warrant Agent for the Warrants is Continental Stock Transfer & Trust Company.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock or the
Warrants of the Company, and no prediction can be made of the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock and the Warrants of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the Warrants and the ability of the Company to raise equity capital in
the future.
Upon completion of this Offering, the Company will have outstanding
3,800,655 shares of Common Stock and 1,800,000 Warrants. Of these securities,
the 1,800,000 Shares and 1,800,000 Warrants sold in this Offering will be
available for immediate sale in the public market without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.
The remaining 2,000,655 shares held by existing stockholders will be
restricted securities as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act.
Sales of the Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market prices of the Common Stock
and Warrants.
All officers and directors of the Company have agreed not to, directly or
indirectly, offer, agree or offer to sell, sell, transfer, pledge, assign,
encumber, grant an option for the purchase or sale of, hypothecate or otherwise
dispose of any beneficial interest in such securities for a period of 24 months
following the effective date of the Registration Statement without the prior
written consent of the Company and the Representative.
As a result of these contractual restrictions, shares subject to lock-up
agreements will not be saleable until the agreements expire. Upon expiration of
the lock-up period, no shares of Common Stock will be eligible for sale pursuant
to Rule 701 and 2,000,655 shares will be eligible for sale under Rule 144.
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner except an affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (approximately 38,000 shares immediately after this Offering),
or (ii) the average weekly trading volume of the Common 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 Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
43
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of Shares and Warrants set forth
opposite their names:
<TABLE>
<CAPTION>
Underwriter Number of Shares Number of Warrants
----------- ---------------- ------------------
<S> <C> <C>
National Securities Corporation ......
--------- ---------
Total .............................. 1,800,000 1,800,000
</TABLE>
The Underwriters are committed to purchase all the Shares of Common Stock
and Warrants offered hereby, if any of such securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share and
$ per Warrant. Such dealers may reallow a concession not in excess of $
per Share and $ per Warrant to certain other dealers. After the
commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
3% of the gross proceeds derived from the sale of the Securities underwritten,
of which $50,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 270,000 shares of Common Stock
and/or 270,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 180,000 shares of Common Stock and/or 180,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share of Common Stock [120% of the initial
public offering price per share of Common Stock] and $ per Warrant [120% of
the initial public offering price per Warrant] for a period of four (4) years,
commencing at the beginning of the second year after their issuance and sale and
are restricted from sale, transfer, assignment or hypothecation for a period of
twelve (12) months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock and Warrants issuable upon the exercise thereof
and in the exercise price of the Representative's Warrants as a result of
certain events, including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
The Underwriting Agreement further provides that the Representative may
designate for election one person to the Company's Board of Directors for a
period of one (1) year from the effective date of the Registration Statement. In
the event the Representative elects not to exercise this right, the
Representative may designate one person to attend meetings of the company's
Board of Directors. Such designee will be entitled to attend all meetings of the
Company's Board of Directors and to receive all notices and other correspondence
and communications sent by the Company to members of its Board of Directors. The
Company will reimburse the designee of the
44
<PAGE>
Representative for his out-of-pocket expenses incurred in connection with
attendance at meetings of the Company's Board of Directors.
All officers and directors and stockholders of the Company have agreed not
to, directly or indirectly, offer, agree or offer to sell, sell, transfer,
pledge, assign, encumber, grant an option for the purchase or sale of,
hypothecate or otherwise dispose of any beneficial interest in such securities
for a period of 24 months following the effective date of the Registration
Statement without the prior written consent of the Company and the
Representative. An appropriate legend will be marked on the face of certificates
representing all such securities.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Common Stock and/or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more Securities in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Securities in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position, up to 270,000 shares of
Common Stock and/or 270,000 Warrants, by exercising the over-allotment option
referred to above. In addition, the Representative may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or dealer participating in the Offering) for the account of
other Underwriters, the selling concession with respect to the Securities that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the prices of the Securities at a
level above which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Securities have been determined by negotiation between the Company and the
Representative and do not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission of 5% of the aggregate
exercise price of such Warrants. However, no compensation will be paid to the
Representative in connection with the exercise of the Warrants if (a) the market
price of the Common Stock is lower than the exercise price, (b) the Warrants are
held in a discretionary account, or (c) the Warrants are exercised in an
unsolicited transaction where the holder of the Warrant has not stated in
writing that the transaction was solicited and has not designated in writing the
Representative as soliciting agent. Unless granted an exemption by the
Commission from its Rule 101 under Regulation M promulgated under the Securities
Act, the Representative and any soliciting broker-dealers will be prohibited
from engaging in any market-making activities or solicited brokerage activities
with regard to the Company's securities for the period from five business days
(or such applicable periods as Rule 101 under Regulation M may provide) prior to
any solicitation of the exercise of the Warrants until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Representative and any soliciting broker-dealers may be unable to continue to
provide a market for the Common Stock or Warrants during certain periods while
the Warrants are exercisable. If the Representative has engaged in any of the
activities prohibited by Rule 101 under Regulation M during the periods
described above, the Representative has undertaken to waive unconditionally its
rights to receive a commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part for a more complete description thereof. See
"Additional Information."
45
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock and the Warrants are being passed upon for the Company by Robinson & Cole
LLP, Boston, Massachusetts, special counsel to the Company. Orrick, Herrington &
Sutcliffe LLP, New York, New York, has acted as counsel to the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of Omega Orthodontics, Inc. at December 31, 1996,
and for the period from the date of August 30, 1996 (inception) through
December 31, 1996, and the financial statements of Michael G. Churosh, D.D.S.,
M.S., Ltd., Dr. Scott E. Feldman, D.D.S., M.S., David T. Grove, D.M.D., Theodore
G. Saydyk, Jr., D.D.S., M.S., P.C., Robert R. Schmisseur, D.D.S., M.S., P.C.,
Clark E. Schneekluth, D.DS., M.D., Inc. and Jeff S. Zapalac, D.D.S., M.S., Inc.
at December 31, 1996 and 1995, and for each of the two years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock and Warrants offered hereby.
This Prospectus, which is a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock and Warrants, reference is hereby made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus concerning the provisions or contents of any
contract, agreement or any other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or document filed as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matters involved, and each statement shall be
deemed qualified in its entirety by such reference to the copy of the applicable
document filed with the Commission. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement and
the exhibits and schedules thereto can be obtained from the Public Reference
Section of the Commission upon payment of the prescribed fee. The Registration
Statement may also be accessed on the World Wide Web through the Commission's
Internet address at "http://www.sec.gov."
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Unaudited Pro Forma Financial
Statements of Omega
Orthodontics, Inc.
Basis of Presentation .................. F-2
Unaudited Pro Forma Balance Sheet ...... F-3
Unaudited Pro Forma Statement of
Operations .............................. F-4
Notes to Unaudited Pro Forma
Financial Statements .................. F-5
Omega Orthodontics, Inc.
Report of Independent Auditors ......... F-7
Balance Sheet ........................... F-9
Statement of Operations .................. F-10
Statement of Stockholders' Deficit ...... F-11
Statement of Cash Flows .................. F-12
Notes to Financial Statements ............ F-13
Michael G. Churosh, D.D.S., M.S.,
Ltd.
Report of Independent Auditors ......... F-20
Balance Sheets ........................... F-21
Statements of Income and
Accumulated Deficit ..................... F-22
Statements of Cash Flows ............... F-23
Notes to Financial Statements ............ F-24
Dr. Scott E. Feldman, D.D.S., M.S.
Report of Independent Auditors ......... F-31
Balance Sheets ........................... F-32
Statements of Income and
Proprietor's Capital .................. F-33
Statements of Cash Flows ............... F-34
Notes to Financial Statements ............ F-35
David T. Grove, D.M.D.
Report of Independent Auditors ......... F-39
Balance Sheets ........................... F-40
Statements of Income and
Proprietor's Capital .................. F-41
Statements of Cash Flows ............... F-42
Notes to Financial Statements ............ F-43
Theodore G. Saydyk, Jr., D.D.S.,
M.S., P.C.
Report of Independent Auditors ......... F-48
Balance Sheets ........................... F-49
Statements of Operations and
Retained Earnings ..................... F-50
Statements of Cash Flows ............... F-51
Notes to Financial Statements ............ F-52
Robert R. Schmisseur, D.D.S.,
M.S., P.C.
Report of Independent Auditors ......... F-58
Balance Sheets ........................... F-59
Statements of Income and
Accumulated Deficit ..................... F-60
Statements of Cash Flows ............... F-61
Notes to Financial Statements ............ F-62
Clark E. Schneekluth, D.D.S.,
M.D., Inc.
Report of Independent Auditors ......... F-70
Balance Sheets ........................... F-71
Statements of Operations and
Accumulated Deficit ..................... F-72
Statements of Cash Flows ............... F-73
Notes to Financial Statements ............ F-74
Jeff S. Zapalac, D.D.S., M.S., Inc.
Report of Independent Auditors ......... F-81
Balance Sheets ........................... F-82
Statements of Operations and
Accumulated Deficit ..................... F-83
Statements of Cash Flows ............... F-84
Notes to Financial Statements ............ F-85
F-1
<PAGE>
OMEGA ORTHODONTICS, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma financial statements (i) give effect to
the Acquisitions pursuant to which the Company will acquire substantially all of
the equity interests of the Initial MSOs that hold certain assets of and are
associated with the seven Initial Orthodontic Affiliates (except in the case of
one sole proprietorship where it will acquire certain assets of such
proprietorship) in exchange for 315,655 shares of the Company's Common Stock,
cash, notes payable, stock options and the assumption of certain liabilities and
(ii) reflect the effects of the provisions of the Affiliation Agreements and
Management Services Agreements between the Company and each of the Initial
Orthodontic Affiliates. For purposes of developing the unaudited pro forma
balance sheet, the value of the Company's Common Stock is based upon the assumed
initial public offering price of $6.00 per share. The estimated aggregate
amounts to be allocated to the net assets acquired consist of:
Common stock $1,893,930
Cash 2,098,464
Notes payable 794,434
-----------
$4,786,828
===========
The allocation is based upon preliminary estimates in accordance with
generally accepted accounting principles. The actual allocation will be based on
the estimated fair market value of the tangible and intangible assets and
liabilities of such Initial MSOs (and the proprietorship) as of the date of the
Acquisitions. For purposes of the pro forma financial statements, such
allocation has been estimated as follows:
Current assets $ 795,033
Intangible assets 4,804,199
Property, equipment and improvements 342,723
Liabilities (1,155,127)
------------
$ 4,786,828
============
The unaudited pro forma financial statements have been prepared by the
Company based upon the historical financial statements of Omega and the Initial
Orthodontic Affiliates included elsewhere in this Prospectus and certain
preliminary estimates and assumptions deemed appropriate by management of the
Company. The pro forma balance sheet as of December 31, 1996 gives effect to the
Acquisitions as if such transactions had occurred on December 31, 1996 and
reflects certain transactions occurring subsequent to December 31, 1996
including (i) the issuance of $300,000, of additional notes payable and related
60,000 shares of Common Stock for no additional consideration, (ii) the issuance
of 10,000 shares of Common Stock under a previous agreement with the Chief
Financial Officer and (iii) the release from escrow of 450,000 shares of Common
Stock previously issued to the Chairman of the Board of Directors and a private
bank upon completion of certain financial advisory services and the additional
obligation of approximately $842,000 for such services to be paid over three
years beginning January 1, 1998. The pro forma statement of operations for the
year ended December 31, 1996 assumes the Acquisitions were completed on January
1, 1996. These pro forma financial statements may not be indicative of actual
results as if the transactions had occurred on the dates indicated or which may
be realized in the future. Neither expected benefits nor cost efficiencies
anticipated by the Company following consummation of the Acquisitions have been
reflected in such pro forma financial statements; however, cost reductions as
contractually agreed per the Management Services Agreements have been reflected
in the pro forma financial statements. Moreover, the pro forma financial
statements do not include the non-recurring compensation expense of $2.2 million
that the Company will recognize during the quarter ending June 30, 1997. Also
the pro forma financial statements do not include any costs for travel,
consulting or professional fees associated with the identification, evaluation
and integration of additional Orthodontic Affiliates, which costs include
substantially all of the compensation of two executives of the Company. These
costs may be substantial and may cause the Company to incur operating losses.
Moreover, pro forma management expenses do not include the anticipated
incremental costs of managing such additional Orthodontic Affiliates as the
related management fees are not included in the pro forma revenues. Such costs
may also be substantial and may vary according to the operations of each new
Orthodontic Affiliate.
The pro forma financial statements should be read in conjunction with the
historical financial statements of Omega and each of the Initial Orthodontic
Affiliates, including the related notes thereto, and "Management's Plan of
Operation" that appear elsewhere in this Prospectus.
F-2
<PAGE>
Omega Orthodontics, Inc.
Unaudited Pro Forma Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Initial
Omega Orthodontic Pro Forma
Orthodontics, Inc. Affiliates Adjustments # Pro Forma
--------------------- -------------- -------------- ---- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents .................. $ 321,057 $ 124,907 $ (124,907) 1 $ 621,057
300,000 5
Patient receivables, net ..................... 8,900 784,278 793,178
Other current assets ........................ 4,000 95,849 (85,094) 1 14,755
Due from selling orthodontists ............... 9,396 210,493 (210,493) 1 9,396
---------- ----------- ------------ --- -----------
Total current assets ........................ 343,353 1,215,527 1,438,386
Property, equipment and improvements, net ... 10,096 600,076 (257,353) 1 352,819
Intangible assets ........................... 137,474 16,594 4,787,605 3 4,942,373
700 5
Other assets ................................. 0 82,098 (82,098) 1 0
---------- ----------- -----------
Total assets .............................. $ 490,923 $ 1,914,295 $ 6,733,578
========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and other current
liabilities ................................. $ 109,349 $ 436,109 $ (256,113) 1 $ 289,345
Deferred revenue ........................... 994,809 (276,040) 2 718,769
Current portion of notes payable ............ 256,163 (245,157) 1 11,006
Due to orthodontic affiliates ............... 214,747 2 2,313,211
2,098,464 3
Due to related party ........................ 27,036 0
27,036
Loans payable .............................. 575,000 0 300,000 5 875,000
---------- ----------- -----------
Total current liabilities .................. 711,385 1,687,081 4,234,367
---------- ----------- -----------
Notes payable to orthodontic affiliates ...... 0 794,434 3 794,434
Notes payable, less current portion ......... 229,816 (199,207) 1 30,609
Due to related party ......................... 842,000 5 842,000
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share;
500,000 shares authorized; no shares
outstanding ................................. 0 0 0
Common stock, $.01 par value per share;
9,500,000 shares authorized; 1,615,000
shares outstanding; 2,000,655 shares
outstanding pro forma ........................ 16,150 0 3,157 3 20,007
700 5
Additional paid-in capital .................. 0 0 1,890,773 3 3,236,273
1,345,500 5
Accumulated deficit ........................ (232,112) (2,192,000) 5 (2,424,112)
Deferred compensation ........................ (4,500) 4,500 5 0
---------- ----------- -----------
Total stockholders' equity (deficit) ......... (220,462) 0 832,168
Owner's equity (deficit) ..................... 0 (2,602) 2,602 4 0
---------- ----------- -----------
Total liabilities and stockholders' equity . $ 490,923 $ 1,914,295 $ 6,733,578
========== =========== ===========
</TABLE>
F-3
<PAGE>
Omega Orthodontics, Inc.
Unaudited Pro Forma Statement of Operations
for the Year Ended December 31, 1996
<TABLE>
<CAPTION>
August 30, 1996 Initial
(Inception) to Orthodontic Pro Forma
December 31, 1996 Affiliates Adjustments # Pro Forma
-------------------- -------------- ------------------------- ---- -------------
<S> <C> <C> <C> <C> <C>
Practice revenue ........................ $ 0 $ 4,615,677 $ 4,615,677
Orthodontists' compensation ............ 0 1,592,639 $(310,904) 1 1,281,735
----------- ----------- --------- --- -----------
Net management revenue .................. 0 3,023,038 3,333,942
Direct practice expenses:
Employee costs ........................ 0 1,049,041 0 1,049,041
Other direct costs ..................... 0 1,035,321 36,678 2 1,071,999
General and administrative ............ 0 735,763 (452,753) 2 283,010
Bad debt expense ..................... 0 89,056 (23,894) 3 65,162
Depreciation and amortization ......... 0 153,098 (33,549) 4 119,549
----------- ----------- --------- --- -----------
Total direct practice expenses ...... 0 3,062,279 2,588,761
----------- ----------- -----------
Income (loss) from operations before
management expenses .................. 0 (39,241) 745,181
Management expenses:
Employee and consulting costs ......... 90,554 0 190,946 5 281,500
General and administrative ............ 157,464 0 89,746 5 247,210
Amortization of goodwill ............... 121,485 6 121,485
--------- --- -----------
Total management expenses ............ 248,018 0 650,195
----------- ----------- -----------
Income (loss) from operations ............ (248,018) (39,241) __ 94,986
| 29,884 7
Interest expense, net .................. (27,172) (29,773) | 29,635 8 (64,953)
|__ (67,527) 9
Other consulting revenue ............... 43,078 0 20,240 10 63,318
----------- ----------- --------- --- -----------
Income (loss) before income taxes ...... (232,112) (69,014) 93,351
Provision (benefit) for income taxes .... 0 (32,297) 109,079 11 76,782
----------- ----------- -------- --- -----------
Net income (loss) ..................... $ (232,112) $ (36,717) $ 16,569
=========== =========== ===========
Pro forma net income (loss) per share ... $ (0.14) $ 0.01
=========== ===========
Shares used to compute net income
(loss) per share ........................ 1,625,000 521,488 12 2,146,488
=========== ======= =========
</TABLE>
F-4
<PAGE>
Omega Orthodontics, Inc.
Notes to Unaudited Pro Forma
Financial Statements
The accompanying unaudited pro forma financial statements present the pro
forma financial position of the Company as of December 31, 1996 and the pro
forma results of its operations for the year ended December 31, 1996. The
Company was incorporated in August 1996.
The unaudited pro forma financial statements also include the historical
financial position at December 31, 1996 and results of operations for the year
ended December 31, 1996 of all of the following entities which comprise the
Initial Orthodontic Affiliates:
Michael G. Churosh, D.D.S., M.S., Ltd.
Dr. Scott E. Feldman, D.D.S., M.S.
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Robert R. Schmisseur, D.D.S., M.S., P.C.
Clark E. Schneekluth, D.D.S., M.D., Inc.
Jeff S. Zapalac, D.D.S., M.S., Inc.
David T. Grove, D.M.D.
Unaudited Pro Forma Balance Sheet Adjustments:
1. Historical assets and liabilities of the Initial Orthodontic Affiliates are
included in the pro forma balance sheet pursuant to the terms and conditions
of the underlying Affiliation Agreements. The pro forma balance sheet
reflects excluded assets and liabilities that are not to be acquired or
assumed as part of the Affiliation Agreements, including all cash and cash
equivalents, notes receivable and payable to the Initial Orthodontic
Affiliates and any amounts owed by the Initial Orthodontic Affiliates which
are unrelated to the assets acquired.
2. Represents the adjustment of gross patient receivables and deferred revenue
(patient prepayments) to reflect the portion of practice revenue retained by
the Affiliated Orthodontists.
3. Represents the allocation of the purchase price to the assets and liabilities
at their estimated fair market values at the date of consummation of the
Acquisitions. Upon consummation of this Offering, the Company will pay the
$2,098,464 included in the unaudited pro forma balance sheet as due to
Orthodontic Affiliates and issue Common Stock and stock options as outlined
in the Affiliation Agreements.
4. Represents the elimination of historical owners' equity (deficit) of the
Initial Orthodontic Affiliates.
5. To reflect certain transactions occurring subsequent to December 31, 1996
including (a) the issuance of 10,000 shares of Common Stock for past
services to the Chief Financial Officer, (b) the issuance of Bridge Notes
in the aggregate principal amount of $300,000, and 60,000 shares of Common
Stock issued in connection therewith, (c) a non-recurring consulting
expense of approximately $2,200,000 comprised of approximately $1,400,000
attributable to the release from escrow of 450,000 shares of Common Stock
and the obligation for approximately $842,000 of cash payments beginning in
January 1998.
Unaudited Pro Forma Statement of Operations Adjustments:
1. To adjust the Affiliated Orthodontists' compensation to agree with the
Management Services Agreements. The Initial Orthodontic Affiliates retain
the difference between practice revenue and the management fee earned by the
Company. The Initial Orthodontic Affiliates typically earn 25% to 35% of
practice revenue. In addition, a portion of the profits, if any, exceeding
an agreed upon profit target will generally be shared with the Orthodontic
Affiliate.
2. To adjust direct practice expenses of the Initial Orthodontic Affiliates to
reflect the expenses that would have been payable under the Management
Services Agreements. Excluded expenses represent those costs that the
Initial Orthodontic Affiliates are responsible for paying directly,
including salaries and benefits of the Affiliated
F-5
<PAGE>
Omega Orthodontics, Inc.
Notes to Unaudited Pro Forma
Financial Statements (Continued)
Orthodontist and any other practice providers, physician licensing fees,
board certification fees, professional liability insurance premiums,
certain professional education expenses and legal and professional fees.
3. To adjust bad debt expense to reflect only the portion related to the
Company's net management revenue and related patient receivables.
4. To adjust depreciation and amortization expense to reflect the exclusion of
certain fixed assets from the historical assets purchased in accordance with
the Affiliation Agreements.
5. To increase management expenses to reflect an estimate of a full year of
operations and management of only the seven Initial Orthodontic Affiliates
but does not include the non-recurring compensation expense of $2,200,000
that the Company will recognize in April 1997 for payments made to two
consultants for past services rendered. Moreover, costs that will be
incurred related to identifying, evaluating and integrating additional
Orthodontic Affiliates have not been included. Such costs could be
substantial and may cause the Company to incur operating losses.
6. Represents the amortization of intangible assets over 40 years.
7. Represents elimination of interest expense associated with the liabilities
excluded from the historical liabilities assumed in accordance with the
Affiliation Agreements. Also represents the elimination of interest income
earned on cash excluded from the historical assets purchased in accordance
with the Affiliation Agreements.
8. Represents the elimination of interest expense incurred in connection with
the Bridge Notes (loans payable) that is assumed to be paid off from the
proceeds of this Offering.
9. To adjust interest expense to reflect the amount incurred in connection with
the issuance of debt in connection with the Acquisitions.
10. To increase other consulting fees to reflect a full year of consulting fees
earned from non-affiliated orthodontic practices. The historical statement
of operations of Omega represents operating results from August 30, 1996.
11. To reflect federal and state income taxes assuming a 40% statutory income
tax rate, increased by the non-deductible portion of goodwill amortization.
12. Based upon the historical shares used to compute net income per share
increased by (i) the issuance of 60,000 shares of Common Stock in
connection with additional Bridge Notes issued subsequent to December 31,
1996, (ii) the assumed issuance of 145,833 shares of Common Stock to repay
$875,000 of outstanding Bridge Notes and (iii) the issuance of 315,655
shares of Common Stock at the assumed initial public offering price of
$6.00 per share in connection with the assumed affiliation with the seven
Initial Orthodontic Affiliates.
F-6
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Omega Orthodontics, Inc.
We have audited the accompanying balance sheet of Omega Orthodontics, Inc. (the
Company) as of December 31, 1996 and the related statements of operations,
stockholders' deficit, and cash flows for the period from August 30, 1996
(inception) to 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 Omega Orthodontics, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
F-7
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has an accumulated deficit of $232,112, and a working capital deficiency of
$368,032 at December 31, 1996. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 1997, except for Note 8,
as to which the date is May 12, 1997
F-8
<PAGE>
Omega Orthodontics, Inc.
Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 321,057
Accounts receivable (net of $5,700 allowance):
Trade 8,900
Related parties 9,396
--------------
18,296
Prepaid expenses and other assets 4,000
--------------
Total current assets 343,353
Equipment, net 10,096
Other assets, net 137,474
---------------
Total assets $ 490,923
===============
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 21,234
Due to related parties 27,036
Accrued expenses 88,115
Notes payable 575,000
---------------
Total current liabilities 711,385
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,615,000 shares issued and outstanding 16,150
Accumulated deficit (232,112)
Deferred compensation (4,500)
---------------
Total stockholders' deficit (220,462)
---------------
Total liabilities and stockholders' deficit $ 490,923
===============
</TABLE>
See accompanying notes.
F-9
<PAGE>
Omega Orthodontics, Inc.
Statement of Operations
For the period from August 30, 1996 (inception)
to December 31, 1996
Revenue:
Management consulting fees $ 43,078
Direct expenses:
Employee costs 90,554
Other costs 11,678
--------------
Total direct expenses 102,232
General and administrative 144,670
Depreciation 1,116
--------------
Operating loss (204,940)
Interest income 2,463
Interest expense (29,635)
--------------
Net loss $ (232,112)
==============
Net loss per share $(0.14)
==============
Shares used to compute net loss per share 1,625,000
==============
See accompanying notes.
F-10
<PAGE>
Omega Orthodontics, Inc.
Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
Total
Common Stock Retained Deferred Stockholders'
Shares Amount Deficit Compensation Deficit
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock in connection
with asset acquisition 1,050,000 $10,500 $10,500
Issuance of common stock in connection
with debt offering 115,000 1,150 1,150
Issuance of common stock in connection
with the Advisor's agreement 450,000 4,500 $(4,500) -
Net loss - - $(232,112) - (232,112)
--------------------------------------------------------------------------------------
Balance at December 31, 1996 1,615,000 $16,150 $(232,112) $(4,500) $(220,462)
======================================================================================
</TABLE>
See accompanying notes.
F-11
<PAGE>
Omega Orthodontics, Inc.
Statement of Cash Flows
For the period from August 30, 1996 (inception)
to December 31, 1996
Operating activities
Net loss $ (232,112)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortized debt financing costs 9,500
Provision for bad debts 5,700
Depreciation 2,430
Changes in operating assets and liabilities:
Accounts receivable (23,996)
Prepaid expenses and other assets (4,000)
Accounts payable 21,234
Due to related parties 27,036
Accrued expenses 88,115
---------------
Net cash used in operating activities (106,093)
Investing activities
Purchases of equipment (7,284)
Other assets (1,644)
---------------
Net cash used in investing activities (8,928)
Financing activities
Deferred offering costs (101,228)
Debt financing costs (37,694)
Proceeds from issuance of notes payable 575,000
---------------
Net cash provided by financing activities 436,078
---------------
Net increase in cash and cash equivalents 321,057
Cash and cash equivalents at beginning of year (year of
inception) -
---------------
Cash and cash equivalents at end of year $ 321,057
===============
Supplemental disclosures:
Interest paid $ 20,135
===============
See accompanying notes.
F-12
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
The Company
Omega Orthodontics, Inc., (the Company) was incorporated in Delaware in August
1996 and subsequently acquired the assets and certain consulting contracts held
by The Orthodontic Management Effectiveness Group of America, LLC (Omega, LLC),
a California-based orthodontic practice management and consulting firm, in
exchange for 1,050,000 shares of the Company's common stock.
The Company will provide management and marketing services to orthodontic
practices in the United States. The Company offers its services primarily under
an "affiliate" relationship whereby it purchases the equity interests of the
management services organization that holds certain assets of and is associated
with an orthodontic practice and enters into a long term management services
agreement with the practice of the selling orthodontist. Pursuant to that
agreement, the Company receives a monthly management fee for providing all of
the orthodontist's practice needs, including facility, staff and supplies, as
well as a program of systems, methods and procedures designed to enhance the
growth, efficiency and profitability of the practice.
Going Concern
The Company has no significant operating history and has an accumulated deficit
of $232,112, and a working capital deficiency of $368,032 at December 31, 1996.
In order to continue operations, the Company is seeking to raise capital through
the initial public offering as contemplated in this Prospectus. If such offering
is not successful, the Company would need to scale back operations, seek
alternative financing sources which are not now available, or both.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
F-13
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
For purposes of its cash flow statement, the Company considers all highly liquid
investments with original maturities of three month or less when purchased to be
cash and cash equivalents.
Equipment
Equipment is stated at cost. Depreciation expense is provided using the
straight-line method over the estimated useful lives of the assets, which is
five years. Equipment cost amounted to $11,212 and accumulated depreciation
amounted to $1,116 at December 31, 1996.
Intangible assets
Intangible assets, consisting primarily of goodwill and organizational costs,
are amortized on a straight line basis over useful lives of five to forty years.
Revenue Recognition
The Company provides management consulting services to orthodontic practices
under consulting agreements. Revenue is recognized as the services are provided.
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting, Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS No. 109 requires that the
Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Due to the
uncertainty of the Company's ability to realize the benefit of the deferred tax
assets, a full valuation allowance has been applied against the deferred tax
assets at December 31, 1996. The Company prepares its tax return on the cash
basis.
F-14
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (continued)
Net Loss Per Share
Net loss per share is computed using the weighted average number of outstanding
shares of common stock and common stock equivalents, and the exercise of stock
options (using the treasury stock method). Common stock equivalent shares are
excluded from the computation if their effect is anti-dilutive; however,
pursuant to the requirements of the Securities and Exchange Commission, common
shares and common equivalent shares relating to stock options (using the
treasury stock method and the initial public offering price) issued during the
twelve months prior to the filing of an initial public offering are considered
outstanding for all periods presented whether or not they are anti-dilutive.
2. Other Assets
Other assets are comprised of the following at December 31, 1996:
Deferred offering costs $101,228
Debt financing costs 38,844
Intangible assets 8,216
---------------
148,288
Less accumulated amortization 10,814
---------------
Other assets, net $137,474
===============
Deferred offering costs include all expenses incurred in connection with the
preparation of the initial public offering as contemplated in this Prospectus,
but does not include any costs contingent upon consummation of the offering (see
Note 4). Debt financing costs incurred in connection with the issuance of
$575,000 of notes payable are being amortized over the term of the debt (see
Note 3).
3. Notes Payable
During 1996, the Company issued a series of notes in the aggregate principal
amount of $575,000. The notes bear interest at 15% per annum and are due on the
earlier of September 30, 1997 or upon consummation of an initial public offering
as contemplated in this Prospectus. In consideration for the purchase of the
notes, the Company issued to the noteholders 115,000 shares of common stock for
no additional payment (see Note 8).
F-15
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
4. Stockholders' Deficit
The Board of Directors voted to amend the Certificate of Incorporation and
revise the number of authorized shares of common stock to 9,500,000 and
authorize 500,000 shares of preferred stock, $.01 par value, effective February
12, 1997. The preferred stock shares will be issuable in one or more series,
each such series to have such rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors.
The Company adopted a Stock Incentive Plan (the Plan) effective January 31,
1997. Plan awards in the form of stock options, stock appreciation rights,
restricted stock, and stock grants may be issued to employees, consultants and
advisers of the Company at prices to be determined by the Board of Directors.
The Plan will terminate on January 30, 2007. A total of 300,000 shares of common
stock were initially reserved for issuance under the Plan and no grants were
made as of December 31, 1996 (see Note 8 for subsequent revisions).
The Company has an agreement with a private bank and the Chairman of the Board
of Directors (the Advisers), whereby the Advisers have agreed to provide certain
consulting and financial advisory services to the Company. As consideration for
such services, the Company contingently issued 450,000 shares of common stock to
the Advisers at no additional cost and simultaneously placed such shares in
escrow. As of December 31, 1996, the 450,000 shares are included in outstanding
common stock at their nominal fair value at the date of issuance with a
corresponding deferred charge. These shares were subsequently released from
escrow upon completion of such services (see Note 8).
The Company has agreed to issue 10,000 shares of common stock for nominal
consideration to the chief financial officer of the Company in return for
assistance in the preparation of financial information and performance of the
related duties. These shares were subsequently issued upon completion of
services (see Note 8).
F-16
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
5. Income Taxes
Since the Company has incurred only losses since inception, and due to the
degree of uncertainty related to the use of the loss carryforwards, the Company
has fully reserved this benefit. At December 31, 1996, the Company had tax net
operating loss carryforwards of approximately $232,112 available to offset
federal and state taxable income which expire in 2011. In accordance with
Section 382 of the Internal Revenue Code, the use of the above carryforwards may
be subject to annual limitations based upon ownership changes of the Company's
stock which have occurred.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1996 are as follows:
Net operating loss carryforwards $ 92,845
Valuation allowance (92,845)
--------------
Net deferred tax asset $ 0
==============
6. Related Party Transactions
Two Directors of the Company purchased an aggregate of $75,000 of the notes
payable and received 15,000 shares of the Company's common stock in connection
therewith. (See Note 8 for subsequent issuances). In addition, three Directors
performed consulting services for the Company for which they were compensated an
aggregate of approximately $90,000 in 1996.
F-17
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
7. Commitments and Contingencies
Since its inception in August 1996, the Company has undertaken to enter into
certain affiliate agreements with seven orthodontic practices (affiliate
orthodontists) in the United States. In the event of a successful public
offering of the Company's common stock, these agreements provide for the
purchase by the Company of the equity interests in a management services
organization (MSO) to be formed by the selling orthodontist for consideration
ranging from $342,000 to $1,082,000 for each such MSO. The estimated aggregate
purchase price of the seven practices under agreement, $4,787,000, will be paid
through a combination of cash of approximately $2,098,000, five-year term notes
totaling $794,000 and shares of common stock of the Company with a fair value at
the date of issue of approximately $1,894,000.
Concurrent with the acquisition of the MSO, the Company and the MSO enter into a
20-year management services agreement, renewable for an additional 20 years,
with each affiliate orthodontist. The agreement will stipulate that the MSO
provide practice management and marketing services, facilities and non-clinical
personnel to the affiliate orthodontic for a monthly fee, generally equal to 65%
to 75% of the affiliate orthodontist's gross patient fee collections.
Conversely, the affiliate orthodontist will have sole authority to direct the
business, professional and ethical aspects of the practice, make all
professional hiring decisions, render patient care, and keep all patient dental
records. The affiliate orthodontist will also be responsible for entering into
an employment agreement, including non-competition provisions, with each
orthodontist employed and paying all salaries for dental professionals,
professional licensure and board certification fees and professional liability
insurance premiums.
The affiliate orthodontist will have certain rights and obligations to
repurchase, and the MSO will have the right to require the affiliate
orthodontist to repurchase, the non-clinical practice assets held by the MSO in
the event that the management services agreement is terminated. Such purchases
will generally require payment of the book value of the net assets of the MSO.
The MSO will also have certain rights to designate a successor orthodontist to
acquire the practice of the affiliate orthodontist when the orthodontist ceases
practice.
The acquisitions are anticipated to result in substantial goodwill which will be
amortized over the term of the management services agreement. All acquisitions
and related management services agreements are contingent upon the consummation
of the initial public offering as contemplated in this Prospectus.
F-18
<PAGE>
Omega Orthodontics, Inc.
Notes to Financial Statements (Continued)
8. Subsequent Events
On April 28, 1997 and May 12, 1997, the Board of Directors took the following
actions: (i) voted to increase the number of shares of common stock authorized
for issuance under the Stock Incentive Plan (the Plan) to 450,000 shares (see
Note 4), which increase was approved by the stockholders, (ii) authorized the
issuance of additional notes payable in the aggregate principal amount of
$300,000, (iii) authorized the Company to enter into various employment and
consulting agreements, which included the granting of stock options under the
Company's Plan for an aggregate of 350,000 shares of common stock, vesting
ratably over periods of one to three years, at an exercise price equal to the
initial public offering price of the Company's common stock and, (iv) authorized
the release from escrow of 450,000 shares of common stock previously issued to
the Chairman of the Board of Directors and a private bank upon completion of
certain financial advisory services (see Note 4) and agreed to additional
consideration of approximately $842,000 for such services to be paid over three
years beginning January 1, 1998.
In consideration for the purchase of the notes, the Company issued to the
noteholders 60,000 shares of common stock for no additional payment (see Note
3). Included in the $300,000 notes payable and 60,000 shares of common stock
were $30,000 and 6,000 shares, respectively, issued to directors of the Company
(see Note 6). The issuance of the 450,000 shares and related consideration of
$842,000 will result in a charge to operating results of the Company of
approximately $2,200,000 in the second quarter of 1997.
F-19
<PAGE>
Audited Financial Statements
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of Michael G. Churosh, D.D.S.,
M.S., Ltd. (the Company) as of December 31, 1996 and 1995, and the related
statements of income and accumulated deficit, and cash flows for the years then
ended. 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 audits.
We conducted our audits 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 audits provide 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 Michael G. Churosh, D.D.S.,
M.S., Ltd. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has a stockholder's deficit of $174,512, and a working capital deficit of
$264,982 at December 31, 1996. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Ernst & Young LLP
Boston, Massachusetts
February 28, 1997
F-20
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
-----------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,418 $ -
Patient receivables, less allowance of $24,000
in 1996 and $22,000 in 1995 139,215 107,861
Prepaid expenses and other assets 7,417 4,959
-----------------------------------
Total current assets 149,050 112,820
Equipment and improvements, net 117,082 122,385
Intangible assets, net 16,594 38,719
Note receivable, stockholder 109,746 175,854
-----------------------------------
Total assets $ 392,472 $ 449,778
===================================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable $ 62,193 $ 34,776
Bank overdraft - 8,472
Accrued expenses - 19,457
Patient prepayments 280,608 243,227
Income taxes payable 6,000 -
Current portion of notes payable 65,231 169,924
-----------------------------------
Total current liabilities 414,032 475,856
Notes payable, less current portion 152,952 218,184
Commitments and contingencies
Stockholder's deficit:
Common stock, $10 par value, 30,000 shares
authorized, 2,500 shares
issued and outstanding 25,000 25,000
Additional paid-in capital 68,711 68,711
Accumulated deficit (268,223) (337,973)
-----------------------------------
Total stockholder's deficit (174,512) (244,262)
-----------------------------------
Total liabilities and stockholder's deficit $ 392,472 $ 449,778
===================================
</TABLE>
See accompanying notes.
F-21
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Statements of Income and Accumulated Deficit
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
-----------------------------------
<S> <C> <C>
Revenue:
Patient revenue $ 974,680 $ 766,311
Direct expenses:
Employee costs 385,031 350,867
Other costs 235,852 205,176
-----------------------------------
Total direct expenses 620,883 556,043
General and administrative 211,146 137,273
Depreciation 47,486 38,970
-----------------------------------
Operating income 95,165 34,025
Interest income, stockholder note 10,189 13,559
Interest expense (29,604) (46,499)
-----------------------------------
Income before income tax expense 75,750 1,085
Income tax expense (6,000) -
-----------------------------------
Net income 69,750 1,085
Accumulated deficit at beginning of year (337,973) (339,058)
-----------------------------------
Accumulated deficit at end of year $(268,223) $(337,973)
===================================
</TABLE>
See accompanying notes.
F-22
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
-----------------------------------
<S> <C> <C>
Operating activities
Net income $ 69,750 $ 1,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 47,486 38,970
Provision for bad debts 24,000 22,000
Changes in operating assets and liabilities:
Patient receivables (55,354) (56,361)
Patient prepayments 37,381 76,074
Prepaid expenses and other assets (2,458) (3,135)
Accounts payable 27,417 (4,719)
Income taxes payable 6,000 -
Accrued expenses (19,457) (1,327)
-----------------------------------
Net cash provided by operating activities 134,765 72,587
Investing activities
Purchases of equipment and improvements (20,058) (35,944)
Notes receivable, stockholder 66,108 49,896
-----------------------------------
Net cash provided by investing activities 46,050 13,952
Financing activity
Repayment of notes payable (169,925) (95,149)
-----------------------------------
Net cash used in financing activity (169,925) (95,149)
-----------------------------------
Net increase (decrease) in cash 10,890 (8,610)
Cash (bank overdraft) at beginning of year (8,472) 138
-----------------------------------
Cash (bank overdraft) at end of year $ 2,418 $ (8,472)
===================================
See accompanying notes.
</TABLE>
F-23
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Michael G. Churosh, D.D.S., M.S., Ltd. (the Company) is a
professional corporation which was incorporated August 31, 1970 in Phoenix,
Arizona for the primary purpose of practicing dentistry. The Company currently
maintains offices in Goodyear and Bullhead City, Arizona.
Basis of Presentation
The Company's financial statements have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. At December 31, 1996, the Company has a
stockholder's deficit of $174,512 and a working capital deficit of $264,982.
Included in total assets is amounts due from stockholder of $109,746 at December
31, 1996.
These conditions indicate that the Company's ability to continue as a going
concern will be dependent upon its ability to generate sufficient cash flow to
meet its liabilities as they become due, including obtaining financing from
outside sources. Management expects to obtain adequate capital from its
contemplated transaction with Omega Orthodontics, Inc. (Omega) (see Note 9).
Should the transaction with Omega not be consummated, management will seek
financing through other sources, however, there can be no assurance that such
sources of capital will be available, on terms and conditions acceptable to the
Company, and that the pending transaction with Omega will be completed. The
financial statements do not include any adjustments to reflect the possibility
of future effects on the classification and recoverability of assets or the
liabilities that might result if the Company were not able to continue as a
going concern in its present form.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Amortization of leasehold improvements is
provided over the term of the lease or their estimated useful life, whichever is
shorter.
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
F-24
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $24,000 and $22,000 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Company to credit risk consist
primarily of patient receivables. The risk with respect to patient receivables
is minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Company generally does not require collateral, and
credit losses consistently have been within management's expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121 "Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of". SFAS No. 121 requires recognition of impairment losses on long-lived assets
when indicators of impairment losses on long-lived assets are present and future
undiscounted cash flows are insufficient to support the assets' recovery.
Adoption of SFAS No. 121 had no material impact on the Company's financial
statements.
F-25
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting, Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS No. 109 requires that the
Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Due to the
uncertainty of the Company's ability to realize the benefit of the deferred tax
assets, a full valuation allowance has been applied against the net deferred tax
assets in 1996 and 1995. The Company prepares its tax returns on the cash basis.
Intangible Assets
Intangible assets consist of goodwill and a five-year covenant not to compete
associated with the purchase of the Bullhead City office. These costs are being
amortized on a straight-line basis over a five-year period.
Professional Liability Insurance
The Company has obtained professional liability coverage through commercial
insurance carriers on a claims-made basis. Management believes that there are no
claims that may result in a loss in excess of amounts covered by its existing
insurance.
2. Equipment and Improvements
Equipment and improvements consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Equipment $105,271 $ 91,832
Leasehold improvements 83,096 77,684
Furniture and fixtures 12,826 11,619
-----------------------------------
201,193 181,135
Less accumulated depreciation and amortization 84,111 58,750
-----------------------------------
Equipment and improvements, net $117,082 $122,385
===================================
</TABLE>
F-26
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
3. Intangible Assets
Intangible assets consisted of the following at December 31:
1996 1995
-----------------------------------
Covenant not to compete $ 95,875 $ 95,875
Goodwill 14,750 14,750
-----------------------------------
110,625 110,625
Less accumulated amortization 94,031 71,906
-----------------------------------
Intangibles, net $ 16,594 $ 38,719
===================================
4. Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Note payable to a finance corporation bearing interest
at 10.33% per annum, payable in monthly installments
of $7,062, including interest through March 2001 $218,183 $284,608
Note payable to a bank bearing interest at 10%, repaid in
1996
- 103,500
-----------------------------------
218,183 388,108
Less current portion 65,231 169,924
-----------------------------------
$152,952 $218,184
===================================
</TABLE>
The notes are secured by substantially all the assets of the Company. The
carrying value of the Company's debt approximates fair value. The aggregate
amounts of required principal payments on the Company's notes payable at
December 31, 1996 are as follows:
Year ending December 31:
1997 $ 65,231
1998 72,226
1999 58,981
2000 18,937
2001 2,808
------------
$218,183
============
Interest paid for the year ended December 31, 1996 and 1995 approximates
interest expense.
F-27
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
5. Related-Party Transactions
The note receivable from the sole stockholder accrues interest at 8% per annum
and is due on demand. The sole stockholder received approximately $146,000 and
$110,000 of compensation from the Company in 1996 and 1995, respectively, which
is included in employee costs. In addition, the stockholder is the principal
owner of the building in which the Company leases its Goodyear office space. No
rent was charged to the Company for the Goodyear facility prior to April 1996.
6. Leases
The Company's Bullhead City office space is rented under an operating lease
which expires in April 1998. The Goodyear office space is rented under a tenant
at will agreement ($2,500 per month). In addition, the Company leases certain
equipment under lease agreements which have been accounted for as operating
leases. The lease agreements expire at various times through 1998. The future
minimum annual rental commitments under these long-term noncancellable leases
are as follow:
Year ending December 31:
1997 $44,371
1998 5,625
-------------
$49,996
=============
Total rent expense for the years ended December 31, 1996 and 1995 amounted to
$65,748 and $36,846, respectively.
7. Profit-Sharing Plan
Employees of the Company who have completed twelve months of service and who
have reached the age of 21 are eligible to participate in the Company's
profit-sharing plan (the Plan). The Plan does not permit nor require employee
contributions. The only source of contributions to the Plan is the annual
employer contributions which are made at the discretion of the board of
directors, and may not exceed 25% of an employee's annual compensation. There
were no employer contributions in 1996 or 1995.
F-28
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
8. Income Taxes
Significant components of the current provision for income taxes are as follows
at December 31, 1996:
Federal $3,500
State 2,500
-------------
$6,000
=============
Significant components of the deferred tax liabilities and assets at December 31
were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
Deferred tax liabilities:
Patient receivables $ (56,000) $ (43,000)
Prepaid expenses (3,000) (2,000)
----------------------------------
Total deferred tax liabilities (59,000) (45,000)
Deferred tax assets:
Patient prepayments 112,000 97,000
Accounts payable and accrued expenses 25,000 22,000
Depreciation 7,000 7,000
Other 18,000 18,000
Net operating loss carryforward - 41,000
----------------------------------
162,000 185,000
Valuation allowance (103,000) (140,000)
----------------------------------
Total deferred tax assets 59,000 45,000
----------------------------------
Net deferred liabilities $ 0 $ 0
==================================
</TABLE>
The effective tax rate for 1996 (7.9%) and 1995 (0%) differed from the statutory
tax rate (34%) due to the utilization of net operating loss carryforwards.
F-29
<PAGE>
Michael G. Churosh, D.D.S., M.S., Ltd.
Notes to Financial Statements (continued)
9. Contingent Practice Acquisition
The Company has entered into an agreement with Omega, a company recently
organized to provide management and marketing services to orthodontic practices
in the United States. In the event of a successful public offering of Omega's
common stock, this agreement provides for the purchase by Omega of the equity
interests in a management services organization (MSO) to be formed by the
Company's sole stockholder converting the Company into a general corporation
which will hold certain assets of the Company. The agreement provides for the
payment by Omega of $1,082,058, consisting of cash of $530,208 and shares of
common stock of Omega with a fair value at the date of issue of $551,850.
Concurrent with the acquisition of the equity interests in the MSO, the sole
stockholder of the Company will organize a new company (the orthodontic
practice) that will enter into a 20-year management services agreement with
Omega (or a wholly-owned subsidiary of Omega) renewable for an additional 20
years. The agreement will stipulate that Omega (or a wholly-owned subsidiary of
Omega) provide practice management and marketing services, facilities and
non-clinical personnel to the orthodontic practice for a monthly fee equal to
70% of the orthodontic practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-30
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of the practice of Dr. Scott E.
Feldman, D.D.S., M.S. (a Proprietorship) as of December 31, 1996 and 1995 and
the related statements of income and proprietor's capital and cash flows for the
years then ended. These financial statements are the responsibility of the
Proprietorship's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide 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 the practice of Dr. Scott E.
Feldman, D.D.S., M.S. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
March 7, 1997
F-31
<PAGE>
Dr. Scott E. Feldman D.D.S., M.S.
(a Proprietorship)
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 21,075 $ 25,270
Patient receivables, less allowance of $4,300 in 1996
and $4,500 in 1995 117,168 126,904
Prepaid expenses and other assets 1,307 1,289
------------------------------------
Total current assets 139,550 153,463
Equipment, net 3,573 4,593
------------------------------------
Total assets $143,123 $158,056
====================================
Liabilities and proprietor's capital
Current liabilities:
Accounts payable $ 4,240 $ 4,875
Accrued expenses 1,300 1,300
Patient prepayments 133,071 115,135
------------------------------------
Total current liabilities 138,611 121,310
Commitments and contingencies
Proprietor's capital 4,512 36,746
------------------------------------
Total liabilities and proprietor's capital $143,123 $158,056
====================================
</TABLE>
See accompanying notes.
F-32
<PAGE>
Dr. Scott E. Feldman D.D.S., M.S.
(a Proprietorship)
Statements of Income and Proprietor's Capital
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $ 436,241 $ 439,505
Direct expenses:
Employee costs 93,521 99,620
Other costs 93,727 114,419
------------------------------------
Total direct expenses 187,248 214,039
General and administrative 29,645 33,761
Depreciation 1,020 510
------------------------------------
Operating income 218,328 191,195
Interest income 352 391
------------------------------------
Net income 218,680 191,586
Proprietor's capital (deficit) at beginning of year 36,746 (11,987)
Proprietor's withdrawals (250,914) (142,853)
------------------------------------
Proprietor's capital at end of year $ 4,512 $ 36,746
====================================
</TABLE>
See accompanying notes.
F-33
<PAGE>
Dr. Scott E. Feldman D.D.S., M.S.
(a Proprietorship)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income $ 218,680 $ 191,586
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,020 510
Provision for bad debts 4,300 4,500
Changes in operating assets and liabilities:
Patient receivables 5,436 (49,993)
Patient prepayments 17,936 25,026
Prepaid expenses and other assets (18) 289
Accounts payable (635) (4,416)
Accrued expenses - (456)
------------------------------------
Net cash provided by operating activities 246,719 167,046
Investing activity
Purchases of equipment - (5,103)
------------------------------------
Net cash used in investing activity - (5,103)
Financing activity
Proprietor's withdrawals (250,914) (142,853)
------------------------------------
Net cash used in financing activity (250,914) (142,853)
------------------------------------
Net increase (decrease) in cash (4,195) 19,090
Cash at beginning of year 25,270 6,180
------------------------------------
Cash at end of year $ 21,075 $ 25,270
====================================
</TABLE>
See accompanying notes.
F-34
<PAGE>
Dr. Scott E. Feldman, D.D.S., M.S.
(a Proprietorship)
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Dr. Scott E. Feldman, D.D.S., M.S., was established as a
sole proprietorship (the Proprietorship) in Woodland Hills, California for the
primary purpose of practicing dentistry.
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $4,300 and $4,500 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Proprietorship to credit risk consists
primarily of patient receivables. The risk with respect to patient receivables
is minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Proprietorship does not require collateral, and
credit losses consistently have been within management's expectations.
F-35
<PAGE>
Dr. Scott E. Feldman, D.D.S., M.S.
(a Proprietorship)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Amortization of leasehold improvements is
provided over the term of the lease or their estimated useful life, whichever is
shorter.
Income Taxes
Income from the Proprietorship is reported in the proprietor's federal and state
income tax return. Accordingly, no income taxes have been recorded in the
Proprietorship's financial statements.
Impairment of Long-Lived Assets
In 1996, the Proprietorship adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of". SFAS No. 121 requires recognition of impairment losses on
long-lived assets when indicators of impairment losses on long-lived assets are
present and future undiscounted cash flows are insufficient to support the
assets' recovery. Adoption of SFAS No. 121 had no material impact on the
Proprietorship's financial statements.
F-36
<PAGE>
Dr. Scott E. Feldman, D.D.S., M.S.
(a Proprietorship)
Notes to Financial Statements (continued)
2. Equipment
Equipment consisted of the following at December 31:
1996 1995
------------------------------------
Equipment $23,909 $23,909
Less accumulated depreciation 20,336 19,316
------------------------------------
Equipment, net $ 3,573 $ 4,593
====================================
3. Operating Leases
The Proprietorship's office space is rented under a tenant at will agreement.
Rent expense amounted to $28,783 and $27,754 in 1996 and 1995 respectively.
4. Related Party Transactions
As a sole proprietorship, the accompanying statements of income and proprietor's
capital do not include any compensation for services rendered by the sole
proprietor. Proprietor's withdrawals amounted to $250,914 and $142,853 in 1996
and 1995, respectively.
F-37
<PAGE>
Dr. Scott E. Feldman, D.D.S., M.S.
(a Proprietorship)
Notes to Financial Statements (continued)
5. Contingent Practice Acquisition
The Proprietorship has entered into an agreement with Omega Orthodontics, Inc.
(Omega), a company recently organized to provide management and marketing
services to orthodontic practices in the United States. In the event of a
successful public offering of Omega's common stock, this agreement provides for
the purchase by Omega of the equity interests in a management services
organization (MSO) to be formed by the Proprietor which will hold certain assets
of the Proprietorship. The agreement provides for the payment by Omega of
$527,743, consisting of cash of $175,915, a five-year term 8.5% annual interest
bearing note totaling $82,680 and shares of common stock of Omega with a fair
value at the date of issue of $269,148.
Concurrent with the acquisition of the equity interests in the MSO, the
Proprietor will organize a new company (the orthodontic practice) that will
enter into a 20-year management services agreement with Omega (or a wholly-owned
subsidiary of Omega) renewable for an additional 20 years. The agreement will
stipulate that Omega (or a wholly-owned subsidiary of Omega) provide practice
management and marketing services, facilities and non-clinical personnel to the
orthodontic practice for a monthly fee equal to 65% of the orthodontic
practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-38
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of the practice of David T.
Grove, D.M.D. (a Proprietorship) as of December 31, 1996 and 1995 and the
related statements of income, proprietor's capital, and cash flows for the years
then ended. These financial statements are the responsibility of the
Proprietorship's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide 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 the practice of David T. Grove,
D.M.D. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
February 10, 1997
F-39
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 87,244 $ 93,362
Patient receivables, less allowance of $8,300 and
$7,000 in 1996 and 1995, respectively 44,369 43,770
Prepaid expenses and other assets 3,977 3,655
------------------------------------
Total current assets 135,590 140,787
Property, equipment and improvements, net 350,487 317,205
------------------------------------
Total assets $486,077 $457,992
====================================
Liabilities and proprietor's capital
Current liabilities:
Accounts payable $ 11,704 $ 10,378
Accrued expenses 6,273 18,525
Patient prepayments 142,849 133,797
Current portion of capital lease obligation 16,819 15,434
------------------------------------
Total current liabilities 177,645 178,134
Capital lease obligation, less current portion 24,797 41,617
Commitments and contingencies
Proprietor's capital 283,635 238,241
------------------------------------
Total liabilities and proprietor's capital $486,077 $457,992
====================================
</TABLE>
See accompanying notes.
F-40
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Statements of Income and Proprietor's Capital
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
--------------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $ 842,361 $ 860,458
Direct expenses:
Employee costs 177,286 180,150
Other costs 147,249 115,889
--------------------------------------------
Total direct expenses 324,535 296,039
General and administrative 103,019 113,707
Depreciation 40,045 32,094
--------------------------------------------
Operating income 374,762 418,618
Interest income 1,983 1,950
Interest expense (4,210) (5,490)
--------------------------------------------
Net income 372,535 415,078
Proprietor's capital at beginning of year 238,241 223,943
Proprietor's withdrawals (327,141) (400,780)
--------------------------------------------
Proprietor's capital at end of year $ 283,635 $ 238,241
============================================
</TABLE>
See accompanying notes.
F-41
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income $ 372,535 $ 415,078
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 40,045 32,094
Provision for bad debts 8,300 7,000
Loss on disposal of property 3,208 -
Changes in operating assets and liabilities:
Patient receivable (8,899) (15,372)
Prepaid expenses and other assets (322) 229
Accounts payable 1,326 (938)
Accrued expenses (12,252) 7,800
Patient prepayments 9,052 1,418
------------------------------------
Net cash provided by operating activities 412,993 447,309
Investing activity
Purchases of property, equipment and improvements (76,535) (12,057)
------------------------------------
Net cash used in investing activity (76,535) (12,057)
Financing activities
Proprietor's withdrawals (327,141) (400,780)
Principal payments on notes payable (15,435) (14,162)
------------------------------------
Net cash used in financing activities (342,576) (414,942)
------------------------------------
Net increase (decrease) in cash and cash equivalents (6,118) 20,310
Cash and cash equivalents at beginning of year 93,362 73,052
------------------------------------
Cash and cash equivalents at end of year $ 87,244 $ 93,362
====================================
</TABLE>
See accompanying notes.
F-42
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Dr. David T. Grove (the Proprietorship) was established
in 1986 as a sole proprietorship in Elko, Nevada for the primary purpose of
practicing dentistry.
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $8,300 and $7,000 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
Cash and Cash Equivalents
The Proprietorship considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Income Taxes
The Proprietorship is organized as a sole proprietorship. Income from the
Proprietorship is reported in the proprietor's federal income tax return.
Accordingly, no income taxes have been recorded in the Proprietorship's
financial statements.
F-43
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Proprietorship to credit risk consist
primarily of accounts receivable. The risk with respect to accounts receivable
is minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Proprietorship generally does not require
collateral, and credit losses consistently have been within management's
expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost. Depreciation expense is
provided using the straight-line method over the estimates useful lives of the
assets, which range from five to forty years. Amortization of assets under
capital lease is provided over the term of the lease or their estimated useful
life, whichever is shorter, and is included with depreciation expense.
Impairment of Long-Lived Assets
In 1996, the Proprietorship adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of". SFAS No. 121 requires recognition of impairment losses on
long-lived assets when indicators of impairment losses are present and future
undiscounted cash flows are insufficient to support the assets' recovery.
Adoption of SFAS No. 121 had no material impact on the Proprietorship's
financial statements.
F-44
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Professional Liability Insurance
The Proprietorship has obtained professional liability coverage through
commercial insurance carriers on a claims-made basis. Management believes that
there are no claims that may result in a loss in excess of amounts covered by
its existing insurance.
2. Property, Equipment and Improvements
Property, equipment and improvements consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Building and improvements $ 236,832 $ 220,530
Furniture and equipment 311,596 275,303
Vehicles 23,940 7,700
------------------------------------
572,368 503,533
Less accumulated depreciation and amortization 230,381 194,828
------------------------------------
341,987 308,705
Land 8,500 8,500
------------------------------------
Property, equipment and improvements, net $ 350,487 $ 317,205
====================================
</TABLE>
3. Related Party Transactions
As a sole proprietorship, the accompanying statements of income and proprietor's
capital do not include any compensation for services rendered by the sole
proprietor. Proprietor's withdrawals amounted to $327,141 and $400,780 in 1996
and 1995, respectively.
Included in employee costs is $2,000 of compensation for a related party
employee in 1996 and 1995.
F-45
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Notes to Financial Statements (continued)
4. Capital Leases
The Proprietorship leases its computer system under a capital lease expiring in
1999. The economic substance of the lease, which contains a bargain purchase
option at the end of the lease term, is that the Proprietorship is financing the
acquisition of the assets through the lease and, accordingly, it is recorded in
the Proprietorship's assets and liabilities.
Assets and related accumulated amortization recorded under capital leases
included in the furniture and fixtures category of property, equipment and
improvements are as follows at December 31:
1996 1995
------------------------------------
Computer system $ 89,830 $ 89,830
Less accumulated amortization 35,290 22,458
------------------------------------
$ 54,540 $ 67,372
====================================
The future minimum annual rental commitments under the capital lease agreement
is as follows at December 31, 1996:
Year ending December 31:
1997 $19,755
1998 19,755
1999 6,583
------------------
46,093
Less amount representing interest 4,477
------------------
Present value of minimum lease payments 41,616
Less current portion of capital lease obligation 16,819
------------------
Capital lease obligation, less current portion $24,797
==================
F-46
<PAGE>
David T. Grove, D.M.D.
(a Proprietorship)
Notes to Financial Statements (continued)
5. Contingent Practice Acquisition
The Proprietorship has entered into an agreement with Omega Orthodontics, Inc.
(Omega), a company recently organized to provide management and marketing
services to orthodontic practices in the United States. In the event of a
successful public offering of Omega's common stock, this agreement provides for
the purchase by Omega (or a wholly-owned subsidiary of Omega) of certain assets
of the Proprietorship for $1,000,704, consisting of cash of $333,567, a
five-year term 8.5% annual interest bearing note totaling $333,567 and shares of
common stock of Omega with a fair value at the date of issue of $333,570.
Concurrent with the acquisition of certain or the Proprietorship's assets, the
Proprietor will organize a new company (the orthodontic practice) to enter into
a 20-year management services agreement with Omega (or a wholly-owned subsidiary
of Omega), renewable for an additional 20 years. The agreement will stipulate
that Omega (or a wholly-owned subsidiary of Omega) provide practice management
and marketing services, facilities and non-clinical personnel to the orthodontic
practice for a monthly fee equal to 75% of the orthodontic practice's gross
patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-47
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of Theodore G. Saydyk, Jr.,
D.D.S., M.S., P.C. (the Company) as of December 31, 1996 and 1995 and the
related statements of operations and retained earnings and cash flows for the
years then ended. 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 audits.
We conducted our audits 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 audits provide 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 Theodore G. Saydyk, Jr.,
D.D.S., M.S., P.C. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 28, 1997
F-48
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 3,510 $ 150
Patient receivable, less allowance of $10,000 and
$16,000 in 1996 and 1995, respectively 264,496 134,145
Income taxes receivable 81,408 -
Prepaid expenses and other assets - 1,057
------------------------------------
Total current assets 349,414 135,352
Equipment and improvements, net 36,773 62,264
Deferred income taxes 82,098 59,612
Note receivable, stockholder - 311,836
------------------------------------
Total assets $468,285 $569,064
====================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 29,225 $ 51,002
Accrued expenses 24,161 9,755
Patient prepayments 124,263 83,324
Income taxes payable - 51,269
Deferred income taxes 114,330 69,144
Current portion of long-term debt 5,274 4,341
------------------------------------
Total current liabilities 297,253 268,835
Long-term debt, less current portion 18,717 23,609
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 100,000 shares
authorized, 10,000 shares issued and outstanding 100 100
Additional paid in capital 1,858 1,858
Retained earnings 150,357 274,662
------------------------------------
Total stockholder's equity 152,315 276,620
------------------------------------
Total liabilities and stockholder's equity $468,285 $569,064
====================================
See accompanying notes.
</TABLE>
F-49
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $ 748,502 $594,116
Direct expenses:
Employee costs 591,834 180,691
Other costs 169,742 159,654
------------------------------------
Total direct expenses 761,576 340,345
General and administrative 135,759 153,164
Depreciation 25,596 24,780
------------------------------------
Operating income (loss) (174,429) 75,827
Interest income 40 14,930
Other income - 34,000
Interest expense (2,916) (10)
------------------------------------
Income (loss) before income taxes (177,305) 124,747
Income tax provision (benefit) (53,000) 42,000
------------------------------------
Net income (loss) (124,305) 82,747
Retained earnings at beginning of year 274,662 191,915
------------------------------------
Retained earnings at end of year $ 150,357 $274,662
====================================
</TABLE>
See accompanying notes.
F-50
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $(124,305) $ 82,747
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 25,596 24,780
Provision for bad debts 10,000 16,000
Deferred income taxes 22,700 (7,000)
Forgiveness of stockholder note included in employee
costs 282,000 -
Changes in operating assets and liabilities:
Patient receivables (140,351) (122,082)
Prepaid expenses and other assets 1,057 59,714
Accounts payable (21,777) 31,219
Accrued expenses 14,406 (1,961)
Patient prepayments 40,939 67,394
Income taxes (132,677) (57,446)
------------------------------------
Net cash provided by (used in) operating activities (22,412) 93,365
Investing activities
Purchases of equipment and improvements (105) (27,950)
Note receivable, stockholder 29,836 (96,683)
------------------------------------
Net cash provided by (used in) investing activities 29,731 (124,633)
Financing activities
Net proceeds from notes payable - 27,950
Repayment of notes payable (3,959) -
------------------------------------
Net cash provided by (used in) financing activities (3,959) 27,950
------------------------------------
Net increase (decrease) in cash 3,360 (3,318)
Cash at beginning of year 150 3,468
------------------------------------
Cash at end of year $ 3,510 $ 150
====================================
Supplemental disclosures:
Income taxes paid $ 57,500 $106,391
====================================
</TABLE>
See accompanying notes.
F-51
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Theodore G. Saydyk, Jr. D.D.S., M.S., P.C. (the Company)
was incorporated December 1, 1987 in Colorado for the primary purpose of
practicing dentistry.
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $10,000 and $16,000 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Company to credit risk consist primarily
of patient receivables. The risk with respect to patient receivables is
minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Company generally does not require collateral, and
credit losses consistently have been within management's expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
F-52
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets,
which range from five to eleven years. Amortization of leasehold improvements is
provided over the term of the lease or their estimated useful life, whichever is
shorter.
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting, Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS No. 109 requires that the
Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company did
not require a valuation allowance in 1996 or 1995.
The Company prepares its tax returns on the cash basis.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, `Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of ". SFAS No. 121 requires recognition of impairment losses on long-lived
assets when indicators of impairment are present and future undiscounted cash
flows are insufficient to support the assets' recovery. Adoption of SFAS No. 121
had no material impact on the Company's financial statements.
Professional Liability Insurance
The Company has obtained professional liability coverage through commercial
insurance carriers on a claims made basis. Management believes that there are no
claims that may result in a loss in excess of amounts covered by its existing
insurance.
F-53
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements (continued)
2. Equipment and Improvements
Equipment and improvements consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Leasehold improvements $114,840 $114,840
Furniture and equipment 181,698 181,593
------------------------------------
296,538 296,433
Less accumulated depreciation and amortization 259,765 234,169
------------------------------------
Equipment and improvements, net $ 36,773 $ 62,264
====================================
</TABLE>
3. Related Party Transactions
At December 31, 1995, the sole stockholder owed the Company $311,836 related to
an outstanding note payable. Interest income was accrued at the applicable
federal rate for short term notes on the outstanding balance and amounted to $40
and $14,930 for the years ended December 31, 1996 and 1995, respectively. The
outstanding balance of the note, $282,000, was forgiven in full during 1996.
The sole stockholder earned approximately $376,000 (including $282,000
forgiveness of debt) of compensation in 1996, which is included in employees
costs for 1996. In 1995, no compensation was earned.
4. Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
12% installment sales contract to a corporation, payable in
monthly installments of $622, including interest, through
December 2000
$ 23,991 $ 27,950
Less current portion 5,274 4,341
------------------------------------
$ 18,717 $ 23,609
====================================
</TABLE>
F-54
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements (continued)
4. Long-term Debt (continued)
The carrying value of the Company's debt approximates fair value. The aggregate
amounts of required principal payments on the Company's long-term debt at
December 31, 1996 are as follows:
Year ending December 31:
1997 $ 5,274
1998 5,511
1999 6,210
2000 6,996
-------------------
$23,991
===================
Interest paid approximated interest expense in 1996 and 1995.
5. Leases
The Company leases office space under a noncancelable operating lease agreement
expiring in 2008. In addition, various equipment is under lease agreements that
have also been accounted for as operating leases. The equipment leases expire at
various times through 1998. The future minimum annual rental commitments under
these long-term noncancelable leases are as follows:
Year ending September 30:
1997 $ 42,778
1998 25,208
1999 23,750
2000 24,700
2001 25,650
Thereafter 173,850
------------------
Total minimum lease payments $315,936
==================
Rental expense, including rentals under leases with terms of less than one year,
for the years ended December 31, 1996 and 1995 amounted to $54,359 and $55,550,
respectively.
F-55
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements (continued)
6. Income Taxes
Significant components of the deferred tax liabilities and assets were as
follows at December 31:
1996 1995
------------------------------------
Deferred tax liabilities:
Patient receivables $(105,798) $(53,658)
Depreciation (8,532) (15,486)
------------------------------------
Total deferred tax liabilities (114,330) (69,144)
Deferred tax assets:
Patient prepayments 49,705 33,330
Other 32,393 26,282
------------------------------------
Total deferred tax assets 82,098 59,612
------------------------------------
Net deferred liabilities $ (32,232) $ (9,532)
====================================
The provision for income taxes (benefit) consisted of the following:
1996 1995
------------------------------------
Current $ (75,700) $ 49,000
Deferred 22,700 (7,000)
------------------------------------
Total $ (53,000) $ 42,000
====================================
The reconciliation of income tax computed at the federal statutory rates to
income tax expense (benefit) is:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
Tax at statutory rates $(61,874) $ 43,661
State income taxes, net of federal tax benefit - 2,200
Utilization of disabled access credit - (5,000)
Valuation allowance on state net operating loss 8,839 -
Other 35 1,139
----------------------------------
$(53,000) $ 42,000
==================================
</TABLE>
F-56
<PAGE>
Theodore G. Saydyk, Jr., D.D.S., M.S., P.C.
Notes to Financial Statements (continued)
7. Employee Benefit Plan
The Company has a money purchase plan and a profit sharing plan (collectively,
the Plans). All employees who have reached the age of 21 and have completed two
years of service are eligible for the Plans. The Company makes annual
contributions to the money purchase plan based on 5% of employees' eligible
compensation. The Company makes discretionary contributions to the profit
sharing plan which are allocated to the employees based on their percentage of
compensation to the total of all employees' compensation. Plan expense for the
years ended December 31, 1996 and 1995 was $7,374 and $5,011, respectively.
8. Contingent Practice Acquisition
The Company has entered into an agreement with Omega Orthodontics Inc. (Omega),
a company recently organized to provide management and marketing services to
orthodontic practices in the United States. In the event of a successful public
offering of Omega's common stock, this agreement provides for the purchase by
Omega of the equity interests in a management services organization (MSO) to be
formed by the Company's sole stockholder converting the Company into a general
corporation which will hold certain assets of the Company. The agreement
provides for the payment by Omega of $680,151, consisting of cash of $226,716, a
five-year term 8.5% annual interest bearing note totaling $106,557 and shares of
common stock of Omega with a fair value at the date of issue of $346,878.
Concurrent with the acquisition of the equity interests in the MSO, the sole
stockholder of the Company will organize a new company (the orthodontic
practice) that will enter into a 20-year management services agreement with
Omega (or a wholly-owned subsidiary of Omega) renewable for an additional 20
years. The agreement will stipulate that Omega (or a wholly-owned subsidiary of
Omega) provide practice management and marketing services, facilities and
non-clinical personnel to the orthodontic practice for a monthly fee equal to
75% of the orthodontic practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
In addition to the above transaction, the Company paid Omega consulting fees in
the amount of $6,000 for the year ended December 31, 1996.
F-57
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of Robert R. Schmisseur, D.D.S.,
P.C. (the Company) as of December 31, 1996 and 1995 and the related statements
of income and accumulated deficit and cash flows for the years then ended. 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 audits.
We conducted our audits 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 audits provide 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 Robert R. Schmisseur, D.D.S.,
P.C. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 1, the Company a
stockholder's deficit of $152,967, and a working capital deficit of $241,848 at
December 31, 1996. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1997
F-58
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,126 $ 1,103
Patient receivables, less allowance of $5,900
and $5,400 in 1996 and 1995, respectively 74,663 62,377
Prepaid expenses and other assets 1,190 2,845
------------------------------------
Total current assets 77,979 66,325
Equipment and improvements, net 39,190 58,077
Note receivable, stockholder 64,703 57,944
------------------------------------
Total assets $ 181,872 $ 182,346
====================================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable $ 6,647 $ 15,388
Accrued expenses 15,736 39,537
Patient prepayments 149,284 141,607
Current portion of notes payable 148,160 16,012
------------------------------------
Total current liabilities 319,827 212,544
Notes payable, less current portion 15,012 148,172
Commitments and contingencies
Stockholder's deficit:
Common stock, no par value, 500 shares authorized,
100 shares issued and outstanding 7,000 7,000
Accumulated deficit (159,967) (185,370)
------------------------------------
Total stockholder's deficit (152,967) (178,370)
------------------------------------
Total liabilities and stockholder's deficit $ 181,872 $ 182,346
====================================
</TABLE>
See accompanying notes.
F-59
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Statements of Income and Accumulated Deficit
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $ 595,535 $ 543,977
Direct expenses:
Employee costs 350,595 280,007
Other costs 106,720 126,649
------------------------------------
Total direct expenses 457,315 406,656
General and administrative 82,836 90,705
Depreciation 21,056 19,699
------------------------------------
Operating income 34,328 26,917
Interest income 4,473 3,279
Interest expense (13,398) (14,571)
------------------------------------
Net income 25,403 15,625
Accumulated deficit at beginning of year (185,370) (200,995)
------------------------------------
Accumulated deficit at end of year $(159,967) $(185,370)
====================================
</TABLE>
See accompanying notes.
F-60
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income $ 25,403 $ 15,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 5,900 5,400
Depreciation 21,056 19,699
Changes in operating assets and liabilities:
Patient receivables (18,186) (24,666)
Prepaid expenses and other assets 1,655 (635)
Accounts payable (8,741) (8,761)
Accrued expenses (23,801) 23,485
Patient prepayments 7,677 489
------------------------------------
Net cash provided by operating activities 10,963 30,636
Investing activities
Purchases of equipment and improvements (2,169) (15,827)
Note receivable, stockholder (6,759) (11,278)
------------------------------------
Net cash used in investing activities (8,928) (27,105)
Financing activities
Proceeds from notes payable 15,000 -
Repayment of notes payable (16,012) (13,026)
------------------------------------
Net cash used in financing activities (1,012) (13,026)
------------------------------------
Net increase (decrease) in cash 1,023 (9,495)
Cash at beginning of year 1,103 10,598
------------------------------------
Cash at end of year $ 2,126 $ 1,103
====================================
Supplemental disclosures:
Interest paid $ 14,077 $ 13,167
====================================
</TABLE>
See accompanying notes.
F-61
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Robert R. Schmisseur, D.D.S., P.C. (the Company) is a
professional corporation which was incorporated February 14, 1985 in Champaign,
Illinois for the primary purpose of practicing dentistry.
Basis of Presentation
The Company's financial statements have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. At December 31, 1996, the Company had a
stockholder's deficit of $152,967 and a working capital deficit of $241,848.
Included in total assets is amounts due from stockholder of $64,703 at December
31, 1996.
These conditions indicate that the Company's ability to continue as a going
concern will be dependent upon its ability to generate sufficient cash flow to
meet its liabilities as they become due, including obtaining financing from
outside sources. Management expects to obtain adequate capital from its
contemplated transaction with Omega Orthodontics, Inc. (Omega) (see Note 8).
Should the transaction with Omega not be consummated, management will seek
financing through other sources, however, there can be no assurance that such
sources of capital will be available, on terms and conditions acceptable to the
Company, and that the pending transaction with Omega will be completed. The
financial statements do not include any adjustments to reflect the possibility
of future effects on the classification and recoverability of assets or the
liabilities that might result if the Company were not able to continue as a
going concern in its present form.
F-62
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $5,900 and $5,400 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Company to credit risk consists
primarily of patient receivables. The risk with respect to patient receivable is
minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Company generally does not require collateral, and
credit losses consistently have been within management's expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
F-63
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Amortization of leasehold improvements is
provided over the term of the lease or their estimated useful life, whichever is
shorter.
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting, Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS No. 109 requires that the
Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Due to the
uncertainty of the Company's ability to realize the benefit of the deferred tax
assets, a full valuation allowance has been applied against the net deferred tax
assets in 1996 and 1995. The Company prepares its tax returns on the cash basis.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121 "Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of". SFAS No. 121 requires recognition of impairment losses on long-lived assets
when indicators of impairment losses on long-lived assets are present and future
undiscounted cash flows are insufficient to support the assets' recovery.
Adoption of SFAS No. 121 had no material impact on the Company's financial
statements.
F-64
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Professional Liability Insurance
The Company has obtained professional liability coverage through commercial
insurance carriers on an occurrence basis. Management believes that there are no
claims that may result in a loss in excess of amounts covered by its existing
insurance.
2. Equipment and Improvements
Equipment and improvements consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Leasehold improvements $ 49,231 $ 49,231
Furniture and fixtures 33,646 33,646
Equipment 202,035 199,866
Vehicles 28,911 28,911
------------------------------------
313,823 311,654
Less accumulated depreciation and amortization 274,633 253,577
------------------------------------
Equipment and improvements, net $ 39,190 $ 58,077
====================================
</TABLE>
3. Related-Party Transactions
At December 31, 1996 and 1995, the Company was owed $64,703 and $57,944,
respectively, from the Company's sole stockholder. Interest income is accrued at
6% on the outstanding balance and amounted to $4,473 and $3,279 for the years
ended December 31, 1996 and 1995, respectively.
Effective February 22, 1989 the Company signed an employment contract with the
sole stockholder. The contract can be terminated by either party without cause
upon giving 90 days written notice. The contract can be terminated immediately
upon the occurrence of certain events, as defined in the contract. Under the
terms of the contract the stockholder is entitled to a salary which is adjusted
annually. Total salary amounted to $110,000 and $70,000 for the years ended
December 31, 1996 and 1995, respectively, which is included in employee costs.
F-65
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
4. Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Revolving line of credit payable to a bank, bearing interest
at 8%, payable in monthly installments of $5,000
including interest to November 1997, with a final
principal payment of $70,000 due December 1997. $126,380 $135,808
Committed line of credit payable to a bank, in monthly
installments of $716 including interest at prime rate plus
1% (9.25% at December 31, 1996) to December 1999.
The note is secured by the assets of the Company and
the personal guarantee of the sole stockholder. 21,792 28,376
Note payable to bank bearing interest at 9.25%, principal
and accrued interest due on March 11, 1997. 15,000 -
------------------------------------
163,172 164,184
Less current portion 148,160 16,012
------------------------------------
$ 15,012 $148,172
====================================
</TABLE>
Notes payable to bank are secured by substantially all the assets of the
Company. The carrying value of the Company's debt approximates fair value. The
aggregate amounts of required principal payments on the Company's notes payable
at December 31, 1996 are as follows:
Year ending December 31:
1997 $148,160
1998 7,453
1999 7,559
-------------------
$163,172
===================
F-66
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
5. Income Taxes
Significant components of the deferred tax liabilities and assets were as
follows at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Patient receivables $ (32,500) $ (25,000)
Other (500) (1,000)
------------------------------------
Total deferred tax liabilities (33,000) (26,000)
Deferred tax assets:
Patient prepayments 60,000 56,500
Accounts payable and accrued expenses 9,000 22,000
Depreciation 24,000 20,500
Net operating loss carryforward 15,000 16,500
------------------------------------
108,000 115,500
Valuation allowance (75,000) (89,500)
------------------------------------
Total deferred tax assets 33,000 26,000
------------------------------------
Net deferred liabilities $ 0 $ 0
====================================
</TABLE>
The effective tax rate for 1996 and 1995 (0%) differed from the statutory tax
rate (34%) due to the decrease in the valuation allowance. The Company had net
operating loss carryforwards of approximately $37,500 at December 31, 1996,
which expire in the year 1999.
F-67
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
6. Leases
The Company's office space is rented under a three year operating lease which
expires on February 28, 1997. The lease contains a renewal option which allows
the Company to renew the lease three times, each for a period of three years,
resulting in a maximum expiration date of February 2006. On February 7, 1997,
the Company exercised its renewal option effective March 1, 1997 extending the
lease through February 28, 2000.
Total rent expense for the years ended December 31, 1996 and 1995 amounted to
$27,556 and $25,472, respectively. Future minimum lease payments are as follows:
Year ending December 31:
1997 $28,290
1998 28,438
1999 28,438
2000 4,740
-------------------
$89,906
===================
7. Defined Contribution Plan
The Company's defined contribution plan (the Plan) covers employees that meet
the Plan's eligibility requirements. The Plan provides for employee
contributions. The Company may also make contributions to the Plan at the
discretion of the Board of Directors. The Company made matching contributions of
$21,314 in 1995. Effective January 1, 1996, the Plan was terminated. Although
the Company has filed for termination of the Plan with the appropriate
regulatory agencies, no formal termination approval has been received.
F-68
<PAGE>
Robert R. Schmisseur, D.D.S., P.C.
Notes to Financial Statements (continued)
8. Contingent Practice Acquisition
The Company has entered into an agreement with Omega, a company recently
organized to provide management and marketing services to orthodontic practices
in the United States. In the event of a successful public offering of Omega's
common stock, this agreement provides for the purchase by Omega of the equity
interests in a management services organization (MSO) to be formed by the
Company's sole stockholder converting the Company into a general corporation
which will hold certain assets of the Company. The agreement provides for the
payment by Omega of $654,124, consisting of cash of $218,042, a five-year term
8.5% annual interest bearing note totaling $218,042 and shares of common stock
of Omega with a fair value at the date of issue of $218,040.
Concurrent with the acquisition of the equity interests in the MSO, the sole
stockholder of the Company will organize a new company (the orthodontic
practice) that will enter into a 20-year management services agreement with
Omega (or a wholly-owned subsidiary of Omega), renewable for an additional 20
years. The agreement will stipulate that Omega (or a wholly-owned subsidiary of
Omega) provide practice management and marketing services, facilities and
non-clinical personnel to the orthodontic practice for a monthly fee equal to
75% of the orthodontic practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-69
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc..
We have audited the accompanying balance sheets of Clark E. Schneekluth, D.D.S.,
M.D., Inc. (the Company) as of December 31, 1996 and 1995 and the related
statements of operations and accumulated deficit and cash flows for the years
then ended. 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 audits.
We conducted our audits 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 audits provide 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 Clark E. Schneekluth, D.D.S.,
M.D., Inc. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
had a net loss of $5,452 for the year ended December 31, 1996, a stockholder's
deficit of $91,143, and a working capital deficit of $91,062 at December 31,
1996. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
Ernst & Young LLP
Boston, Massachusetts
March 7, 1997
F-70
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Patient receivable, less allowance of $29,556 and
$32,774 in 1996 and 1995, respectively $ 94,059 $103,784
Prepaid expenses and other assets 550 -
------------------------------------
Total current assets 94,609 103,784
Equipment and improvements, net 16,960 14,762
------------------------------------
Total assets $111,569 $118,546
====================================
Liabilities and stockholder's deficit
Current liabilities:
Bank overdraft $ 9,622 $ 7,847
Accounts payable 55,811 24,016
Accrued expenses 31,022 7,894
Patient prepayments 67,240 82,696
Demand note payable 15,000 10,000
Current portion of notes payable 6,976 1,983
------------------------------------
Total current liabilities 185,671 134,436
Notes payable, less current portion 17,041 22,331
Commitments and contingencies
Stockholder's deficit:
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Accumulated deficit (92,143) (39,221)
------------------------------------
Total stockholder's deficit (91,143) (38,221)
------------------------------------
Total liabilities and stockholder's deficit $111,569 $118,546
====================================
</TABLE>
See accompanying notes.
F-71
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Statements of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $394,301 $387,187
Direct expenses:
Employee costs 178,697 171,584
Other costs 122,182 105,515
------------------------------------
Total direct expenses 300,879 277,099
General and administrative 91,858 77,883
Depreciation 6,271 7,212
------------------------------------
Operating income (loss) (4,707) 24,993
Interest expense 745 1,072
------------------------------------
Net income (loss) (5,452) 23,921
Accumulated deficit at beginning of year (39,221) (23,656)
Distributions to stockholder (47,470) (39,486)
------------------------------------
Accumulated deficit at end of year $(92,143) $(39,221)
====================================
</TABLE>
See accompanying notes.
F-72
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ (5,452) $23,921
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 6,271 7,212
Provision for bad debts (29,556) (32,774)
Changes in operating assets and liabilities:
Patient receivables 39,281 37,301
Prepaid expenses and other assets (550) 1,350
Accounts payable 31,795 (5,740)
Accrued expenses 23,128 1,080
Patient prepayments (15,456) 8,215
------------------------------------
Net cash provided by operating activities 49,461 40,565
Investing activity
Purchases of equipment and improvements (8,469) (1,800)
------------------------------------
Net cash used in investing activity (8,469) (1,800)
Financing activities
Proceeds from notes payable 12,500 10,000
Repayment of notes payable (7,797) (17,138)
Distributions to stockholder (47,470) (39,486)
------------------------------------
Net cash used in financing activities (42,767) (46,624)
------------------------------------
Net decrease in cash (1,775) (7,859)
Cash (bank overdraft) at beginning of year (7,847) 12
------------------------------------
Bank overdraft at end of year $ (9,622) $(7,847)
====================================
</TABLE>
See accompanying notes.
F-73
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Clark E. Schneekluth D.D.S., M.D., Inc. (the Company) is
a professional corporation which was incorporated October 15, 1985 in the state
of California for the primary purpose of practicing dentistry.
Basis of Presentation
The Company's financial statements have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. For the year ended December 31, 1996 the
Company incurred a net loss of $5,452. At December 31, 1996, the Company had a
stockholder's deficit of $91,143 and a working capital deficit of $91,062.
These conditions indicate that the Company's ability to continue as a going
concern will be dependent upon its ability to generate sufficient cash flow to
meet its liabilities as they become due, including obtaining financing from
outside sources. Management expects to obtain adequate capital from its
contemplated transaction with Omega Orthodontics, Inc. (Omega) (see Note 6).
Should the transaction with Omega not be consummated, management will seek
financing through other sources, however, there can be no assurance that such
sources of capital will be available, on terms and conditions acceptable to the
Company, and that the pending transaction with Omega will be completed. The
financial statements do not include any adjustments to reflect the possibility
of future effects on the classification and recoverability of assets or the
liabilities that might result if the Company were not able to continue as a
going concern in its present form.
F-74
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $29,556 and $32,774 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Company to credit risk consist primarily
of patients receivable. The risk with respect to patients receivable is
minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Company generally does not require collateral, and
credit losses consistently have been within management's expectations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
F-75
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Amortization of leasehold improvements is
provided over the term of the lease or their estimated useful life, whichever is
shorter.
Income Taxes
The Company has elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the stockholder is liable
for individual federal income taxes on the corporate income. Accordingly, no
provision has been made for federal income tax in the accompanying financial
statements. The Company prepares its tax returns on the cash basis.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of". SFAS No. 121 requires recognition of impairment losses on long-lived assets
when indicators of impairment are present and future undiscounted cash flows are
insufficient to support the assets' recovery. Adoption of SFAS No. 121 had no
material impact on the Company's financial statements.
Professional Liability Insurance
The Company has obtained professional liability coverage through commercial
insurance carriers on a claims-made basis. Management believes that there are no
claims that may result in a loss in excess of amounts covered by its existing
insurance.
F-76
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
2. Equipment and Improvements
Equipment and improvements consisted of the following at December 31:
1996 1995
------------------------------------
Equipment and improvements $70,270 $61,801
Less accumulated depreciation 53,310 47,039
------------------------------------
Equipment and improvements, net $16,960 $14,762
====================================
3. Related Party Transaction
The sole stockholder received approximately $39,000 and $40,000 of compensation
from the Company in 1996 and 1995, respectively, which is included in employee
costs. Stockholder's distribution amounted to $47,470 and $39,486 in 1996 and
1995, respectively. Additionally, the Company has a non-interest bearing note
payable, due on demand, amounting to $15,000 and $10,000 at December 31, 1996
and 1995, respectively, with PRO Inc., a related party.
In January and February, 1997, the Company incurred additional borrowings
totaling $10,950 from PRO Inc. Borrowings bear interest at 10% per annum and are
due within 180 days from date of issuance.
F-77
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
4. Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Note payable with an individual bearing interest at 5% per
annum, payable in monthly installments of $500,
including interest through February 1997. $ 1,764 $ 7,738
Corporate credit card issued through a bank bearing
variable interest rate (17.44% at December 31, 1996),
payable in installments of 2.2% of the outstanding
balance. 16,359 16,576
Note payable with a bank bearing interest at 12.99% per
annum, payable in monthly installments of $172,
including interest through March 2000. 5,894 -
------------------------------------
24,017 24,314
Less current portion 6,976 1,983
------------------------------------
$17,041 $22,331
====================================
</TABLE>
F-78
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
4. Notes Payable (continued)
These notes are unsecured. The carrying value of the Company's debt approximates
fair value. Interest paid for the years ended December 31, 1996 and 1995
approximates interest expense. The aggregate amounts of required principal
payments on the Company's notes payable at December 31, 1996 are as follows:
Year ending December 31:
1997 $ 6,976
1998 4,506
1999 4,032
2000 2,838
2001 - thereafter 5,665
-------------------
$24,017
===================
5. Leases
The Company's office space is rented under a six-month renewable operating lease
expiring in February,1997. In addition, the Company leases certain equipment
under lease agreements which have been accounted for as operating leases.
Total rent expense for the years ended December 31, 1996 and 1995 amounted to
$28,662 and $17,121, respectively.
F-79
<PAGE>
Clark E. Schneekluth, D.D.S., M.D., Inc.
Notes to Financial Statements (continued)
6. Contingent Practice Acquisition
The Company has entered into an agreement with Omega, a company recently
organized to provide management and marketing services to orthodontic practices
in the United States. In the event of a successful public offering of Omega's
common stock, this agreement provides for the purchase by Omega of the equity
interests in a management services organization (MSO) to be formed by the
Company's sole stockholder converting the Company into a general corporation
which will hold certain assets of the Company. The agreement provides for the
payment by Omega of $342,048, consisting of cash of $114,016, a five-year term
8.5% annual interest bearing note totaling $53,588 and shares of common stock of
Omega with a fair value at the date of issue of $174,444.
Concurrent with the acquisition of the equity interests in the MSO, the sole
stockholder of the Company will organize a new company (the orthodontic
practice) that will enter into a 20-year management services agreement with
Omega (or a wholly-owned subsidiary of Omega) renewable for an additional 20
years. The agreement will stipulate that Omega (or a wholly-owned subsidiary of
Omega) provide practice management and marketing services, facilities and
non-clinical personnel to the orthodontic practice for a monthly fee equal to
75% of the orthodontic practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-80
<PAGE>
Report of Independent Auditors
To the Board of Directors
Omega Orthodontics, Inc.
We have audited the accompanying balance sheets of Jeff S. Zapalac, D.D.S.,
M.S., Inc. (the Company) as of December 31, 1996 and 1995 and the related
statements of operations and accumulated deficit and cash flows for the years
then ended. 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 audits.
We conducted our audits 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 audits provide 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 Jeff S. Zapalac, D.D.S., M.S.,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 25, 1997
F-81
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 18,156 $ 14,283
Patient receivables, less allowance of $10,000
in 1996 and $3,000 in 1995 50,308 50,263
------------------------------------
Total current assets 68,464 64,546
Equipment and improvements, net 36,011 22,701
Note receivable, stockholder 36,044 43,329
------------------------------------
Total assets $140,519 $130,576
====================================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable $ 20,712 $ 4,478
Accrued expenses 32,052 31,825
Patient prepayments 97,494 76,221
Notes payable - 9,317
Income taxes payable 14,703 17,904
------------------------------------
Total current liabilities 164,961 139,745
Commitments and contingencies
Stockholder's deficit:
Common stock, $1 par value, 2,000 shares
authorized, 1,000 shares issued and outstanding 1,000 1,000
Accumulated deficit (25,442) (10,169)
------------------------------------
Total stockholder's deficit (24,442) (9,169)
------------------------------------
Total liabilities and stockholder's deficit $140,519 $130,576
====================================
</TABLE>
See accompanying notes.
F-82
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Statements of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenue:
Patient revenue $624,057 $563,520
Direct expenses:
Employee costs 286,661 231,740
Other costs 159,849 112,296
------------------------------------
Total direct expenses 446,510 344,036
General and administrative 170,556 107,197
Depreciation 11,624 10,897
------------------------------------
Operating income (loss) (4,633) 101,390
Interest income 4,332 84
Interest expense (269) (1,991)
------------------------------------
Income (loss) before income taxes (570) 99,483
Provision for income taxes 14,703 17,597
------------------------------------
Net income (loss) (15,273) 81,886
Accumulated deficit at beginning of year (10,169) (92,055)
------------------------------------
Accumulated deficit at end of year $(25,442) $(10,169)
====================================
</TABLE>
See accompanying notes.
F-83
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $(15,273) $81,886
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for bad debt expense 10,000 3,000
Depreciation 11,624 10,897
Changes in operating assets and liabilities:
Patient receivables (10,045) (29,375)
Patient prepayments 21,273 (20,724)
Accounts payable 16,234 (11,744)
Accrued expenses 227 16,746
Income taxes payable (3,201) 12,026
------------------------------------
Net cash provided by operating activities 30,839 62,712
Investing activities
Note receivable, stockholder 7,285 (35,434)
Purchases of equipment and improvements (24,934) (2,156)
------------------------------------
Net cash used in investing activity (17,649) (37,590)
Financing activity
Repayment of notes payable (9,317) (17,342)
------------------------------------
Net cash used in financing activity (9,317) (17,342)
------------------------------------
Net increase in cash 3,873 7,780
Cash at beginning of year 14,283 6,503
------------------------------------
Cash at end of year $ 18,156 $14,283
====================================
Supplemental disclosures:
Taxes paid $ 17,904 $ 5,571
====================================
</TABLE>
See accompanying notes.
F-84
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Nature of Business
The dental practice of Jeff S. Zapalac, D.D.S., M.S., Inc. (the Company) is a
professional corporation which was incorporated September 9, 1981 in Austin,
Texas for the primary purpose of practicing dentistry.
Revenue Recognition
Revenue is recognized in accordance with the proportional performance method of
accounting for service contracts. Under this method, revenue is recognized as
services are performed and the costs associated therewith are incurred, under
the terms of contractual agreements with each patient. A significant portion,
approximately 25%, of the services are performed in the initial month of the
contract. Billings under each contract, which vary in duration from 12 to 24
months, are made throughout the term of the contract. Provisions are made
currently for all known or anticipated losses from patient receivables and for
loss contracts. Such deductions totaled $10,000 and $3,000 in 1996 and 1995,
respectively. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.
Risks and Uncertainties
Concentration of Credit Risk
- ----------------------------
Financial instruments which subject the Company to credit risk consists
primarily of patient receivables. The risk with respect to patient receivables
is minimized due to the fact that patients remit a substantial portion of their
contract fee in advance. The Company performs periodic credit evaluations of its
patients' financial condition and generally does not require collateral. Credit
losses consistently have been within management's expectations.
F-85
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Orthodontic Supplies and Materials
Orthodontic supplies and materials are expensed as incurred.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation expense is provided
using the straight-line method over the estimated useful lives of the assets.
Amortization of leasehold improvements is provided over the term of the lease or
their estimated useful life, whichever is shorter.
Professional Liability Insurance
The Company has obtained professional liability coverage through commercial
insurance carriers on an occurrence basis. Management believes that there are no
claims that may result in a loss in excess of amounts covered by its existing
insurance.
Income Taxes
The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting, Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS No. 109 requires that the
Company record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Due to the
uncertainty of the Company's ability to realize the benefit of the deferred tax
assets, a full valuation allowance has been applied against the net deferred tax
assets in 1996 and 1995. The Company prepares its tax returns on the cash basis.
F-86
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of". SFAS No. 121 requires recognition of impairment losses on
long-lived assets when indicators of impairment losses on long-lived assets are
present and future undiscounted cash flows are insufficient to support the
assets' recovery. Adoption of SFAS No. 121 had no material impact on the
Company's financial statements.
2. Equipment and Improvements
Equipment and improvements consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Leasehold improvements $ 18,496 $ 8,122
Furniture and fixtures 149,374 144,595
Office equipment 54,223 48,370
Dental equipment 12,720 8,792
------------------------------------
234,813 209,879
Less accumulated depreciation and amortization 198,802 187,178
------------------------------------
Equipment and improvements, net $ 36,011 $ 22,701
====================================
</TABLE>
3. Related Party Transactions
The note receivable, stockholder is a 10% unsecured note, including accrued
interest, with no fixed repayment schedule. Interest income accrued on the
outstanding balance was approximately $4,000 for the year ended December 31,
1996. The sole stockholder received approximately $148,000 and $90,500 of
compensation in 1996 and 1995, respectively, which is included in employee
costs. In addition, the Company leases office space from the sole stockholder.
(See also Note 5.)
F-87
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements (continued)
4. Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Note payable to bank, due in monthly installments of
$1,132, plus interest at the bank's prime rate plus 1%
(9.5% at December 31, 1995), paid in full July, 1996. $ - $9,317
-----------------------------------
$ - $9,317
===================================
</TABLE>
Interest paid approximated interest expense in 1996 and 1995.
5. Leases
The Company rents office space from a stockholder under a four year operating
lease which expires in December 1998. Annual rent expense for the years ended
December 31, 1996 and 1995 amounted to $84,000. Future minimum lease payments
are $84,000 per annum for the years ended December 31, 1997 and 1998.
6. Income Taxes
Significant components of the deferred tax liabilities and assets were as
follows at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Patient receivables, net $(20,100) $(20,100)
Depreciation (4,200) (6,300)
------------------------------------
Total deferred tax liabilities (24,300) (26,400)
Deferred tax assets:
Accounts payable and accrued expenses 21,100 14,500
Patient prepayments 39,000 30,500
------------------------------------
60,100 45,000
Valuation allowance (35,800) (18,600)
------------------------------------
Total deferred tax assets 24,300 26,400
------------------------------------
Net deferred tax liabilities $ 0 $ 0
====================================
</TABLE>
F-88
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements (continued)
6. Income Taxes (continued)
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is:
1996 1995
-----------------------------------
Tax at statutory rates $ (200) $34,819
Change in valuation allowance 17,200 (15,265)
Other (2,297) (1,957)
-----------------------------------
Total $14,703 $17,597
===================================
Since the Company prepares its tax return on a cash basis, the effective tax
rate differs from the statutory tax rate due to the timing of cash receipts and
disbursements.
7. Profit Sharing Plan
The Company has a profit sharing plan (the Plan) that covers all employees
meeting defined eligibility requirements. Contributions are at the discretion of
management. Total contributions to the Plan charged to operations were
approximately $27,000 and $26,000 in 1996 and 1995, respectively.
8. Contingent Practice Acquisition
The Company has entered into an agreement with Omega Orthodontics, Inc. (Omega),
a company recently organized to provide management and marketing services to
orthodontic practices in the United States. In the event of a successful public
offering of Omega's common stock, this agreement provides for the purchase of by
Omega of the equity interests in a management services organization (MSO) to be
formed by the Company's sole stockholder converting the Company into a general
corporation which will hold certain assets of the Company. The agreement
provides for the payment by Omega of $500,000 which will be paid in cash. In
addition, the sole stockholder of the Company will receive an option to purchase
$500,000 of shares of common stock of Omega at the fair value at the date of
issuance.
F-89
<PAGE>
Jeff S. Zapalac, D.D.S., M.S., Inc.
Notes to Financial Statements (continued)
8. Contingent Practice Acquisition (continued)
Concurrent with the acquisition of the equity interests in the MSO, the sole
stockholder of the Company will organize a new company (the orthodontic
practice) that will enter into a 20-year management services agreement with
Omega (or a wholly-owned subsidiary of Omega) renewable for an additional 20
years. The agreement will stipulate that Omega (or a wholly-owned subsidiary of
Omega) provide practice management and marketing services, facilities and
non-clinical personnel to the orthodontic practice for a monthly fee equal to
75% of the orthodontic practice's gross patient fee collections.
The acquisition and related management services agreement are entirely
contingent upon the consummation of an initial public offering by Omega.
F-90
<PAGE>
================================================================================
No Underwriter, dealer, salesperson or any other person has been authorized
to give any information or to make any representations 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. 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. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation.
--------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary .................. 3
Risk Factors ........................ 6
The Company ........................... 14
Use of Proceeds ..................... 15
Dividend Policy ..................... 16
Capitalization ........................ 17
Dilution .............................. 18
Selected Financial Data ............... 19
Management's Plan of Operation ...... 20
Business .............................. 24
Management ........................... 31
Certain Transactions .................. 37
Principal Stockholders ............... 38
Description of Securities ............ 40
Shares Eligible for Future Sale ...... 43
Underwriting ........................ 44
Legal Matters ........................ 46
Experts .............................. 46
Additional Information ............... 46
Index to Financial Statements ......... F-1
--------------------------
Until , 1997, (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement 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.
================================================================================
OMEGA
ORTHODONTICS, INC.
1,800,000 Shares of Common Stock
and
1,800,000 Redeemable Common Stock
Purchase Warrants
----------------------------
PROSPECTUS
----------------------------
NATIONAL SECURITIES
CORPORATION
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law, as amended, which provides that a
corporation may indemnify any person who was or is a party to 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), judgments, 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 proceedings, had no reasonable cause to believe such person's conduct was
unlawful. Section 145 further provides that a corporation similarly 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 to 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 Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite an 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.
Article Sixth of the Company's Certificate of Incorporation, as amended,
eliminates the personal liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty to the full
extent permitted by Delaware law. Article VII of the Company's By-Laws provides
that the Company shall indemnify its officers and directors to the full extent
permitted by the Delaware General Corporation Law. Under the Company's By-Laws,
a director or officer will not receive indemnification if such director or
officer is found not to have acted in good faith and in a manner such director
or officer reasonably believed to be in or not opposed to the best interests of
the Company.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
Item 25. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated, except for the
Registration Fee and NASD Filing Fee.
Registration Fee ........................ $ 8,726
NASD Filing Fee ........................ $ 3,379
Nasdaq Listing Fee ..................... *
Boston Stock Exchange Listing Fee ...... $ 15,000
Printing and Engraving Expenses ......... *
Legal Fees and Expenses ............... *
Accounting Fees and Expenses ............ *
Blue Sky Fees and Expenses ............ *
Transfer and Warrant Agent Fee ......... *
Miscellaneous ........................... *
--------
TOTAL ................................. $ *
========
- ----------
* To be completed by amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
The securities issued in the following transactions were not registered
under the Securities Act in reliance upon the exemptions from registration set
forth in Section 3(b) and/or 4(2) of the Securities Act and the rules and
regulation promulgated thereunder.
On August 31, 1996, Omega issued, in a private transaction, 1,050,000
shares of its Common Stock to The Orthodontic Management Effectiveness Group of
America, LLC ("OMEGA, LLC") in exchange for OMEGA, LLC's orthodontic practice
management business and certain related assets and agreements. Messrs. Schulhof,
Glovsky, Grove and Bellavia, all of the then directors of Omega, held in the
aggregate, at the time of the issuance, in excess of 50% of the membership
points of OMEGA, LLC. Omega relied on Section 4(2) of the Securities Act and the
rules and regulations promulgated thereunder in issuing these securities without
registration under the Securities Act.
Pursuant to an agreement among Omega, Dr. Glovsky, the Chairman of the
Board, and The Mayflower Group, Ltd., a private banking firm and a holder of in
excess of five percent of the membership points of OMEGA, LLC ("Mayflower"), as
amended and restated, Omega issued 225,000 shares of its Common Stock to each of
Dr. Glovsky and Mayflower in consideration of certain consulting services
rendered by Dr. Glovsky and Mayflower to Omega. Omega relied on Section 4(2) of
the Securities Act and the rules and regulations promulgated thereunder in
issuing these securities without registration under the Securities Act.
During September, October and November 1996 and February and April 1997,
Omega privately placed $875,000 of its 15% Senior Notes due September 30, 1997
(the "Bridge Notes") along with 175,000 shares of its Common Stock with a group
of "accredited investors," as that term is defined in Rule 501 promulgated under
the Securities Act. The total consideration received by Omega for these
securities was $875,000. Omega relied on Section 4(2) of the Securities Act and
the rules and regulations promulgated thereunder in issuing these securities
without registration under the Securities Act.
In April 1997, Omega issued 10,000 shares of its Common Stock to Leonard,
Mulherin & Greene, P.C., a public accounting firm ("LMG"), in partial
consideration for consulting services provided by LMG to Omega. Omega's Chief
Financial Officer is a principal stockholder of LMG. Omega relied on Section
4(2) of the Securities Act and the rules and regulations promulgated thereunder
in issuing these securities without registration under the Securities Act.
Item 27. Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------
1.1 Form of Underwriting Agreement
2.1 Asset Purchase Agreement dated as of August 31, 1996 by and
between Omega Orthodontics, Inc. and The Orthodontic
Management Effectiveness Group of America, LLC
2.2 Affiliation Agreement by and among Omega Orthodontics, Inc.,
Robert R. Schmisseur, D.D.S., Robert Schmisseur, D.D.S., P.C.,
and Omega Orthodontics of Champaign, Inc.
2.3 Affiliation Agreement and Agreement and Plan of Merger by and
among Omega Orthodontics, Inc., Theodore G. Saydyk, Jr.,
D.D.S. and Theodore G. Saydyk, Jr., D.D.S., P.C.
2.4 Affiliation Agreement and Agreement and Plan of Merger by and
among Omega Orthodontics, Inc., Scott E. Feldman, D.D.S. and
Scott E. Feldman, D.D.S., M.S.
2.5 Affiliation Agreement by and among Omega Orthodontics, Inc.,
Jeff S. Zapalac, D.D.S., Jeff S. Zapalac, D.D.S., M.S., Inc.,
and Omega Orthodontics of Austin, Inc.
2.6 Affiliation Agreement by and among Omega Orthodontics, Inc.,
David T. Grove, D.M.D. and Omega Orthodontics of Elko, Inc.
2.7 Affiliation Agreement and Agreement and Plan of Merger by and
among Omega Orthodontics, Inc., Michael G. Churosh, D.D.S. and
Michael G. Churosh, D.D.S., M.S., LTD.
2.8 Affiliation Agreement and Agreement and Plan of Merger by and
among Omega Orthodontics, Inc., Clark E. Schneekluth, D.D.S.
and Clark E. Schneekluth, D.D.S., P.C.
II-2
<PAGE>
Exhibit No. Exhibit Description
- ----------- -------------------
3.1 Certificate of Incorporation of Omega Orthodontics, Inc.
3.2 Certificate of Amendment of Certificate of Incorporation of
Omega Orthodontics, Inc. filed February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc.
4.1 Specimen Certificate for Common Stock*
4.2 Form of Subscription Agreement for private placement of 15%
Senior Notes due September 30, 1997 (including rights to
receive shares of Common Stock)
4.3 Form of 15% Senior Notes due September 30, 1997
4.4 Warrant Agreement by and between Omega Orthodontics, Inc. and
Continental Stock Transfer & Trust Company, including form of
Warrant
4.5 Representative's Warrant Agreement by and between National
Securities Corporation and Omega Orthodontics, Inc., including
form of Representative's Warrant
5.1 Legal Opinion of Robinson & Cole LLP*
10.1 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Schmisseur, Omega
Orthodontics of Champaign, Inc. and OMEGA Orthodontics, Inc.
10.2 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Saydyk, Omega
Orthodontics of Colorado Springs, Inc. and OMEGA Orthodontics,
Inc.
10.3 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Feldman, Omega
Orthodontics of Woodland Hills, Inc. and OMEGA Orthodontics,
Inc.
10.4 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Zapalac, Omega
Orthodontics of Austin, Inc. and OMEGA Orthodontics, Inc.
10.5 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Grove, Omega
Orthodontics of Elko, Inc. and OMEGA Orthodontics, Inc.
10.6 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Churosh, Omega
Orthodontics of Goodyear, Inc. and OMEGA Orthodontics, Inc.
10.7 Form of Management Services Agreement by and among a
professional corporation to be formed by Dr. Schneekluth,
Omega Orthodontics of Huntington Beach, Inc. and OMEGA
Orthodontics, Inc.
10.8 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Schmisseur, Robert R. Schmisseur, D.D.S., Omega
Orthodontics, Inc. and Omega Orthodontics of Champaign, Inc.
10.9 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Saydyk, Theodore G. Saydyk, Jr.,D.D.S., Omega
Orthodontics, Inc. and Omega Orthodontics of Colorado Springs,
Inc.
10.10 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Feldman, Scott E. Feldman, D.D.S., Omega Orthodontics
Inc., and Omega Orthodontics of Woodland Hills, Inc.
10.11 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Zapalac, Jeff S. Zapalac, D.D.S., Inc., Omega
Orthodontics, Inc. and Omega Orthodontics of Austin, Inc.
10.12 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Grove, David T. Grove, D.M.D., Omega Orthodontics, Inc.
and Omega Orthodontics of Elko, Inc.
10.13 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Churosh, Michael G. Churosh, D.D.S., Omega Orthodontics,
Inc. and Omega Orthodontics of Goodyear, Inc.
II-3
<PAGE>
Exhibit No. Exhibit Description
- ----------- -------------------
10.14 Form of Stock Put/Call Option and Successor Designation
Agreement by and among a professional corporation to be formed
by Dr. Schneekluth, Clark E. Schneekluth, D.D.S., Omega
Orthodontics, Inc. and Omega Orthodontics of Huntington Beach,
Inc.
10.15 Form of Non-negotiable Promissory Note from Omega Orthodontics,
Inc. payable to Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note from Omega Orthodontics,
Inc. payable to Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note from Omega Orthodontics,
Inc. payable to Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note from Omega Orthodontics,
Inc. payable to David T. Grove
10.19 Form of Non-negotiable Promissory Note from Omega Orthodontics,
Inc. payable to Clark E. Schneekluth
10.20 General Assignment and Assumption Agreement dated as of August
31, 1997 by and between The Orthodontic Management
Effectiveness Group of America, LLC and Omega Orthodontics,
Inc.
10.21 Employment Agreement by and between Robert J. Schulhof and
Omega Orthodontics, Inc.
10.22 Employment Agreement by and between Dean C. Bellavia and Omega
Orthodontics, Inc.
10.23 Employment Agreement by and between F. V. Elliott and Omega
Orthodontics, Inc.
10.24 Omega Orthodontics Incentive Stock Plan, as amended
10.25 Subscription Agreements dated as of September 9, 1996 and April
28, 1997 by and between Omega Orthodontics, Inc. and C. Joel
Glovsky Rollover IRA
10.26 Subscription Agreement dated as of September 25, 1996 by and
between Omega Orthodontics, Inc. and Dean C. Bellavia
10.27 Amended and Restated Consulting Agreement by and among Omega
Orthodontics, Inc., The Mayflower Group, Ltd. and C. Joel
Glovsky, as amended
10.28 Agreement dated as of October 23, 1996 by and between Leonard,
Mulherin & Greene, P.C. and Omega Orthodontics, Inc.
10.29 Consulting Agreement by and between C. Joel Glovsky and Omega
Orthodontics, Inc.
10.30 Consulting Agreement by and between Leonard, Mulherin & Greene,
P.C. and Omega Orthodontics, Inc.
10.31 Subscription Agreement dated as of April 28, 1997 by and
between Omega Orthodontics, Inc. and David T. Grove
11. Computation of Pro Forma Earnings Per Share
21.1 List of Subsidiaries of Omega Orthodontics, Inc.*
23.1 Consent of Robinson & Cole LLP (included in their opinion filed
as Exhibit 5.1)
23.2 Consents of Ernst & Young LLP, independent auditors
24.1 Powers of Attorney (contained in Part II of this Registration
Statement)
27.1 Financial Data Schedule
- ----------------
*To be filed by amendment
II-4
<PAGE>
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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.
The small business issuer will:
(1) For determining any liability under the Securities Act, treat 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 small business issuer under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that the offering of the securities at that time as the initial bona fide
offering of those securities.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any fact or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the city of Boston,
Commonwealth of Massachusetts, on May 15, 1997.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
-----------------------------------
Robert J. Schulhof,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Robert J.
Schulhof and C. Joel Glovsky, and each of them, with full power to act without
the other, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments and amendments thereto) to this
Registration Statement on Form SB-2 of the Registrant, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he might or could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ------------------------------------- -----------------------
<S> <C> <C>
/s/ Robert J. Schulhof Director, President and Chief May 15, 1997
- ------------------------- Executive Officer (Principal
Robert J. Schulhof Executive Officer)
/s/ Edward M. Mulherin Chief Financial Officer (Principal May 15, 1997
- ------------------------- Financial and Accounting Officer)
Edward M. Mulherin
/s/ Dean C. Bellavia Director May 15, 1997
- -------------------------
Dean C. Bellavia
/s/ John J. Clarke, Jr. Director May 15, 1997
- -------------------------
John J. Clarke, Jr.
/s/ Floyd V. Elliott Director May 15, 1997
- -------------------------
Floyd V. Elliott
/s/ C. Joel Glovsky Director May 15, 1997
- -------------------------
C. Joel Glovsky
/s/ David T. Grove Director May 15, 1997
- -------------------------
David T. Grove
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page
- ----------- ------------------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement
2.1 Asset Purchase Agreement dated as of August 31, 1996 by and between Omega Orthodontics,
Inc. and The Orthodontic Management Effectiveness Group of America, LLC
2.2 Affiliation Agreement by and among Omega Orthodontics, Inc., Robert R. Schmisseur, D.D.S.,
Robert Schmisseur, D.D.S., P.C., and Omega Orthodontics of Champaign, Inc.
2.3 Affiliation Agreement and Agreement and Plan of Merger by and among Omega Orthodontics,
Inc., Theodore G. Saydyk, Jr., D.D.S. and Theodore G. Saydyk, Jr., D.D.S., P.C.
2.4 Affiliation Agreement and Agreement and Plan of Merger by and among Omega Orthodontics,
Inc., Scott E. Feldman, D.D.S. and Scott E. Feldman, D.D.S., M.S.
2.5 Affiliation Agreement by and among Omega Orthodontics, Inc., Jeff S. Zapalac, Jeff S. Zapalac,
D.D.S., M.S., Inc., and Omega Orthodontics of Austin, Inc.
2.6 Affiliation Agreement by and among Omega Orthodontics, Inc., David T. Grove, D.M.D. and
Omega Orthodontics of Elko, Inc.
2.7 Affiliation Agreement and Agreement and Plan of Merger by and among Omega Orthodontics,
Inc., Michael G. Churosh, D.D.S. and Michael G. Churosh, D.D.S., M.S., LTD.
2.8 Affiliation Agreement and Agreement and Plan of Merger by and among Omega Orthodontics,
Inc., Clark E. Schneekluth, D.D.S. and Clark E. Schneekluth, D.D.S., P.C.
3.1 Certificate of Incorporation of Omega Orthodontics, Inc.
3.2 Certificate of Amendment of Certificate of Incorporation of Omega Orthodontics, Inc. filed
February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc.
4.1 Specimen Certificate for Common Stock*
4.2 Form of Subscription Agreement for private placement of 15% Senior Notes due
September 30, 1997 (including rights to receive shares of Common Stock)
4.3 Form of 15% Senior Notes due September 30, 1997
4.4 Warrant Agreement by and between Omega Orthodontics, Inc. and Continental Stock Transfer
& Trust Company, including form of Warrant
4.5 Representative's Warrant Agreement by and between National Securities Corporation and
Omega Orthodontics, Inc., including form of Representative's Warrant
5.1 Legal Opinion of Robinson & Cole LLP*
10.1 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Schmisseur, Omega Orthodontics of Champaign, Inc. and OMEGA
Orthodontics, Inc.
10.2 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Saydyk, Omega Orthodontics of Colorado Springs, Inc. and OMEGA
Orthodontics, Inc.
10.3 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Feldman, Omega Orthodontics of Woodland Hills, Inc. and OMEGA
Orthodontics, Inc.
10.4 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Zapalac, Omega Orthodontics of Austin, Inc. and OMEGA Orthodontics, Inc.
10.5 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Grove, Omega Orthodontics of Elko, Inc. and OMEGA Orthodontics, Inc.
10.6 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Churosh, Omega Orthodontics of Goodyear, Inc. and OMEGA Orthodontics, Inc.
10.7 Form of Management Services Agreement by and among a professional corporation to be
formed by Dr. Schneekluth, Omega Orthodontics of Huntington Beach, Inc. and OMEGA
Orthodontics, Inc.
10.8 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Schmisseur, Robert R. Schmisseur, D.D.S.,
Omega Orthodontics, Inc. and Omega Orthodontics of Champaign, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page
- ------------- -------------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.9 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Saydyk, Theodore G. Saydyk, Jr., D.D.S.,
Omega Orthodontics, Inc. and Omega Orthodontics of Colorado Springs, Inc.
10.10 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Feldman, Scott E. Feldman, D.D.S., Omega
Orthodontics Inc., and Omega Orthodontics of Woodland Hills, Inc.
10.11 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Zapalac, Jeff S. Zapalac, D.D.S., Inc., Omega
Orthodontics, Inc. and Omega Orthodontics of Austin, Inc.
10.12 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Grove, David T. Grove, D.M.D., Omega
Orthodontics, Inc. and Omega Orthodontics of Elko, Inc.
10.13 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Churosh, Michael G. Churosh, D.D.S., Omega
Orthodontics, Inc. and Omega Orthodontics of Goodyear, Inc.
10.14 Form of Stock Put/Call Option and Successor Designation Agreement by and among a
professional corporation to be formed by Dr. Schneekluth, Clark E. Schneekluth, D.D.S.,
Omega Orthodontics, Inc. and Omega Orthodontics of Huntington Beach, Inc.
10.15 Form of Non-negotiable Promissory Note from Omega Orthodontics, Inc. payable to
Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note from Omega Orthodontics, Inc. payable to
Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note from Omega Orthodontics, Inc. payable to
Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note from Omega Orthodontics, Inc. payable to
David T. Grove
10.19 Form of Non-negotiable Promissory Note from Omega Orthodontics, Inc. payable to
Clark E. Schneekluth
10.20 General Assignment and Assumption Agreement dated as of August 31, 1997 by and between
The Orthodontic Management Effectiveness Group of America, LLC and Omega
Orthodontics, Inc.
10.21 Employment Agreement by and between Robert J. Schulhof and Omega Orthodontics, Inc.
10.22 Employment Agreement by and between Dean C. Bellavia and Omega Orthodontics, Inc.
10.23 Employment Agreement by and between F. V. Elliott and Omega Orthodontics, Inc.
10.24 Omega Orthodontics Incentive Stock Plan, as amended
10.25 Subscription Agreement dated as of September 9, 1996 and April 28, 1997 by and between
Omega Orthodontics, Inc. and C. Joel Glovsky Rollover IRA
10.26 Subscription Agreement dated as of September 25, 1996 by and between Omega Orthodontics,
Inc. and Dean C. Bellavia
10.27 Amended and Restated Consulting Agreement by and among Omega Orthodontics, Inc., The
Mayflower Group, Ltd. and C. Joel Glovsky, as amended
10.28 Agreement dated as of October 23, 1996 by and between Leonard, Mulherin & Greene, P.C.
and Omega Orthodontics, Inc.
10.29 Consulting Agreement by and between C. Joel Glovsky and Omega Orthodontics, Inc.
10.30 Consulting Agreement by and between Leonard, Mulherin & Greene, P.C. and Omega
Orthodontics, Inc.
10.31 Subscription Agreement dated as of April 28, 1997 by and between Omega Orthodontics, Inc.
and David T. Grove
11. Computation of Pro Forma Earnings Per Share
21.1 List of Subsidiaries of Omega Orthodontics, Inc.*
23.1 Consent of Robinson & Cole LLP (included in their opinion filed as Exhibit 5.1)*
23.2 Consents of Ernst & Young LLP, independent auditors
24.1 Powers of Attorney (contained in Part II of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ----------------
*To be filed by amendment
Exhibit 1.1
OHS DRAFT
5/7/97
[Form of Underwriting Agreement - Subject to Additional Review]
1,800,000 Shares of Common Stock
and 1,800,000 Redeemable Warrants
OMEGA ORTHODONTICS, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 1997
NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Omega Orthodontics, Inc., a Delaware corporation (the "Company"),
confirms its agreement with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.01 par
value per share ("Common Stock"), and redeemable common stock purchase warrants
(the "Redeemable Warrants"), each to purchase one share of Common Stock, set
forth in Schedule A hereto. The aggregate 1,800,000 Shares and 1,800,000
Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Securities." Each Redeemable Warrant is
exercisable commencing on ____________, 1998 [12 months from the date of this
Agreement] until ____________, 2002 [60 months from the date of this Agreement],
unless
<PAGE>
previously redeemed by the Company, at an initial exercise price of $_______
[110% of the initial public offering price] per share of Common Stock. The
Redeemable Warrants may be redeemed by the Company at a redemption price of $.10
per Redeemable Warrant at any time after _____________, 1998 [18 months from the
date of this Agreement] on thirty (30) days' prior written notice, provided that
the closing bid price of the Common Stock equals or exceeds $_______________
[200% of the initial public offering price of Common Stock] per share, for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the notice of redemption, all in
accordance with the terms and conditions of the Warrant Agreement (herein
defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 270,000 shares of Common Stock and/or 270,000
Redeemable Warrants for the purpose of covering over-allotments, if any. Such
270,000 shares of Common Stock and 270,000 Redeemable Warrants are hereinafter
collectively to as the "Option Securities." The Company also proposes to issue
and sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
for the purchase of an additional 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants. The shares of Common Stock and Redeemable Warrants issuable
upon exercise of the Representative's Warrants are hereinafter referred to as
the "Representative's Securities." The Firm Securities, the Option Securities,
the Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed
<PAGE>
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) Each of the Company and Michael G. Churash, D.D.S., M.S., Ltd.
("Churash"), Theodore G. Saydyk, Jr. D.D.S., M.S., P.C. ("Saydyk"), Robert G.
Schmisseur, D.D.S., M.S., P.C. ("Schmisseur"), Clark E. Schneekluth, D.D.S.,
M.D., Inc. ("Schneekluth"), Jeff S. Zapalac, D.D.S., M.S., Inc. ("Zapalac") and
Marshall D. Spoto, D.D.S., P.A. ("Spoto") has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation. Churash, Saydyk, Schmisseur, Schneekluth, Zapalac, Spoto and the
orthodontic practices of Dr. Scott E. Feldman, D.D.S., M.S. ("Feldman") and
David T. Grove, D.M.D. ("Grove") are hereinafter referred to individually as a
"Subsidiary" and collectively as the "Subsidiaries." Churash, Saydyk,
Schmisseur, Schneekluth, Zapalac and Spoto are hereinafter referred to
collectively as the "Corporate Practices." Except as set forth in the
Prospectus, none of the Company nor the Subsidiaries owns an interest in any
corporation, partnership, trust, joint
3
<PAGE>
venture or other business entity. Each of the Company and the Corporate
Practices is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. Each of the Company and the Subsidiaries has all requisite power and
authority (corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and the Subsidiaries is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all applicable
federal, state, local and foreign laws, rules and regulations; and none of the
Company nor the Subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company or the Subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's and the Subsidiaries'
businesses as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement and as described
in the Prospectus. The Securities and all other securities issued or issuable by
the Company conform or, when issued and paid for, will conform, in all respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable
and the holders thereof have no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to
4
<PAGE>
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company and the Subsidiaries,
together with the related notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiaries at the respective dates and for the respective periods to which
they apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Ernst & Young, LLP, who are
independent certified public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their reports filed therewith. There has
been no adverse change or development involving a prospective adverse change in
the condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
and each of the Subsidiaries, whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and the
Subsidiaries, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information set forth in the Prospectus under the headings "Summary Financial
Data," "Selected Consolidated Financial Data," "Capitalization," and
"Management's Plan of Operation," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus. The pro forma financial statements of the Company
and the Subsidiaries, and the related notes thereto, set forth in the
Registration Statement and the Prospectus, have been prepared in conformity with
the requirements of the Act and the Rules and Regulations and present fairly the
information shown therein; and the pro forma adjustments on such pro forma
financial statements have been properly applied on the basis described in the
related notes thereto. The pro forma financial data set forth in the Prospectus
have been prepared on a basis consistent with the pro forma financial statements
of the Company and the Subsidiaries. The amounts shown as accrued for current
and deferred income and other taxes in such financial statements are sufficient
for the payment of all accrued and unpaid federal, state, local and foreign
income taxes, interest, penalties, assessments or deficiencies applicable to the
Company and the Subsidiaries, whether disputed or not, for the applicable period
then ended and periods prior thereto; adequate allowance for doubtful accounts
has been provided for unindemnified losses due to the operations of the Company
and the Subsidiaries; and the statements of income do not contain any items of
special or nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
(g) Each of the Company and the Subsidiaries (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
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(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, malpractice and
property insurance, which insures each of the Company, the Subsidiaries and
their respective employees, against such losses and risks generally insured
against by comparable businesses. None of the Company nor the Subsidiaries (A)
has failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under any insurance policy or surety bond in a due and timely manner,
(B) has any disputes or claims against any underwriter of such insurance
policies or surety bonds or has failed to pay any premiums due and payable
thereunder, or (C) has failed to comply with all conditions contained in such
insurance policies and surety bonds. There are no facts or circumstances under
any such insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or any Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiaries which (i) questions the validity of the capital stock of the
Company, this Agreement, the Warrant Agreement, the Affiliation Agreements (as
defined herein) or the Representative's Warrant Agreement, or of any action
taken or to be taken by the Company pursuant to or in connection with this
Agreement, the Warrant Agreement or, the Affiliation Agreements or the
Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company and each of the Subsidiaries.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement, the Affiliation Agreements and the Representative's
Warrant Agreement and to consummate the transactions provided for in this
Agreement, the Warrant Agreement, the Affiliation Agreements and the
Representative's Warrant Agreement; and this Agreement, the Warrant Agreement,
the Affiliation Agreements and the Representative's Warrant Agreement have each
been duly and properly authorized, executed and delivered by the Company. Each
of this Agreement, the Warrant Agreement, the Affiliation Agreements and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, and none of the Company's issue and sale of the Securities, execution
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or delivery of this Agreement, the Warrant Agreement, the Affiliation Agreements
or the Representative's Warrant Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of any of the Company or the Subsidiaries pursuant to the terms of
(i) the certificate of incorporation or by-laws of any of the Company or the
Corporate Practices, (ii) any license, contract, collective bargaining
agreement, indenture, mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which any of the Company or the Subsidiaries is a party or by
which any of the Company or the Subsidiaries is or may be bound or to which
either of its or their respective properties or assets (tangible or intangible)
is or may be subject, or any indebtedness, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to any of the Company or the
Subsidiaries of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over any of the Company or the Subsidiaries or any of its or
their respective activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement, the Affiliation Agreements and the Representative's
Warrant Agreement and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive, first refusal or
other rights that any entity or person may have for the issue and/or sale of any
of the Securities, except such as have been or may be obtained under the Act or
may be required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Firm Securities and the Option
Securities, and the Representative's Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which any of the Company or the Subsidiaries is a
party or by which it or they may be bound or to which its or their respective
assets, properties or business may be subject have been duly and validly
authorized, executed and delivered by the Company or the Subsidiaries, as the
case may be, and constitute the legal, valid and binding agreements of the
Company or the Subsidiaries, as the case may be, enforceable against each of
them in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
and fairly present the information required to be shown with respect thereto by
Form SB-2, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
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(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, none of the Company
nor the Subsidiaries has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of any of the Company or the
Subsidiaries.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which any of the Company or the Subsidiaries is a
party or by which any of the Company or the Subsidiaries may be bound or to
which the property or assets (tangible or intangible) of any of the Company or
the Subsidiaries is subject or affected.
(p) Each of the Company and the Subsidiaries has generally enjoyed
a satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
any of the Company or the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against any of the Company or the Subsidiaries pending
before the National Labor Relations Board or any lockout, strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving any of the Company or the Subsidiaries, or any predecessor entity, and
none has ever occurred. No representation question exists respecting the
employees of any of the Company or the Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
any of the Company or the Subsidiaries. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements of any
of the Company or the Subsidiaries. No labor dispute with the employees of any
of the Company or the Subsidiaries exists, or, is imminent.
(q) None of the Company nor any of the Subsidiaries maintains,
sponsors or contributes to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan," or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). None of the Company nor the Subsidiaries maintains or
contributes, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company or the Subsidiaries to any tax penalty on prohibited transactions and
which has not adequately been corrected. Each ERISA Plan is in compliance with
all reporting, disclosure and
8
<PAGE>
other requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
None of the Company nor the Subsidiaries has ever completely or partially
withdrawn from a "multiemployer plan."
(r) None of the Company, the Subsidiaries, nor any of its or their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(t) Ernst & Young, LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(u) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed (i) not to, directly
or indirectly, issue, offer, offer to sell, sell, grant any option for the sale
or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than twenty-four (24) months following the effective date of
the Registration Statement without the prior written consent of the
Representative and the Company and (ii) to waive all rights to request or demand
the registration pursuant to the Act of any securities of the Company which are
registered in the name of or beneficially owned by any such holder. During the
24 month period commencing on the effective date of the Registration Statement,
the Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. The
Company will cause the Transfer Agent (as hereinafter defined) to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(v) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or
9
<PAGE>
issuance with respect to the Company, the Subsidiaries, or any of its or their
respective officers, directors, stockholders, partners, employees or affiliates,
that may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(w) The Common Stock has been approved for quotation on the Nasdaq
Small Cap Market ("Nasdaq").
(x) None of the Company, the Subsidiaries, nor any of its or their
respective officers, employees, agents or any other person acting on behalf of
any of the Company or the Subsidiaries has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of any of the Company or the Subsidiaries (or assist
any of the Company or the Subsidiaries in connection with any actual or proposed
transaction) which (a) might subject any of the Company or the Subsidiaries, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of any of the Company or the Subsidiaries, or (c) if not continued in
the future, might adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or prospects of any
of the Company or the Subsidiaries. The Company's and each Subsidiary's internal
accounting controls are sufficient to cause each of the Company and the
Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(y) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of any Subsidiary, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by any of the Company or the Subsidiaries,
or (B) purchases from or sells or furnishes to any of the Company or the
Subsidiaries any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or any Subsidiary is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or any Subsidiary,
and any officer, director, or 5% or greater securityholder of the Company or any
Subsidiary, or any partner, affiliate or associate of any of the foregoing
persons or entities.
(z) Any certificate signed by any officer of the Company or any
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
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(aa) The minute books of each of the Company and the Corporate
Practices have been made available to the Underwriters and contain a complete
summary of all meetings and actions of the directors (including committees
thereof) and stockholders of each of the Company and the Corporate Practices,
since the time of its incorporation, and reflect all transactions referred to in
such minutes accurately in all material respects.
(ab) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ac) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Robert J.
Schulhof and Dr. Dean C. Bellavia in the form filed as Exhibit ______ and
Exhibit __, respectively, to the Registration Statement and (ii) purchased term
key person insurance on the life of Mr. Schulhof in the amount of $1 million
which policy names the Company as the sole beneficiary thereof.
(ad) Each of the Company and the Subsidiaries confirms as of the
date hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and each of the Company and the Subsidiaries further agrees that if it or
any affiliate commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's, any Subsidiary's or any
affiliate's, business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
(ae) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(af) Each of the Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(ag) The Company has entered into a warrant agreement
substantially in the form filed as Exhibit ____ to the Registration Statement
(the "Warrant Agreement") with Continental Stock Transfer & Trust Company, as
Warrant Agent, in form and substance satisfactory to the Representative, with
respect to the Redeemable Warrants and providing for the payment of the
commission contemplated by Section 4(v).
(ah) Prior to the date hereof, the Company has entered into
Affiliation Agreements with each of the Subsidiaries in the form filed as
Exhibit __ to the Registration Statement (the "Affiliation Agreements"). Each of
the Affiliation Agreements has been duly and validly authorized, executed and
delivered by the Company and to the best of the Company's knowledge, by each of
the Subsidiaries, and constitutes valid and binding obligations of the Company
and to the knowledge of the Company, the Subsidiaries in accordance with the
respective terms of the Affiliation Agreements. In accordance with the
Certificate of Incorporation and By-Laws of the Company and applicable law,
rules and regulations, all consents, approvals, authorizations, permissions,
waivers, orders and permits required to authorize, approve and consummate the
Affiliation Agreements and the transactions contemplated thereby, on behalf of
the Company and to the Company's best knowledge, by each of the Subsidiaries,
have been duly and validly obtained or will be obtained prior to the
consummation of such transaction and remain in full force and effect.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [90% of the public offering price] per Share and $_______ [90% of the
public offering price] per Redeemable Warrant, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 270,000 shares of Common Stock at a price of $ ____ [90% of the
public offering price] per share of Common Stock and/or an additional 270,000
Redeemable Warrants at a price of $______ [90% of the public offering price] per
Redeemable Warrant. The option granted hereby will expire forty-five (45) days
after (i) the date the Registration Statement becomes effective, if the Company
has elected not to rely on Rule 430A under the Rules and Regulations, or (ii)
the date of this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Firm Securities upon
notice by the Representative to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the
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<PAGE>
option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing Date") shall
be determined by the Representative, but shall not be later than three (3) full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Representative at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or
at such other place as shall be agreed upon by the Representative and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New York City
time) on , 1997 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company. Delivery of the certificates
for the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company for the Firm Securities and the Option Securities, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for the
Firm Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit [___]
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<PAGE>
to the Registration Statement. Payment for the Representative's Warrants shall
be made on the Closing Date.
3. Public Offering of the Shares and Redeemable Warrants. As soon after
the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
respective public offering price after distribution of the Shares and Redeemable
Warrants has been completed to such extent as the Representative, in its sole
discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and Redeemable Warrants by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the
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Representative, pursuant to Rule 424(b)(4)) not later than the Commission's
close of business on the earlier of (i) the second business day following the
execution and delivery of this Agreement and (ii) the fifth business day after
the effective date of the Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
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(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent certified
public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
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(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twenty-four (24) months from the effective date of the Registration
Statement, each of the Company's stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock
agrees that it or he or she (i) will not, directly or indirectly, issue, offer
to sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representative (collectively, the "Lock-up Agreements") and (ii) waives, during
such 24 month period, any and all rights to request or demand the registration
pursuant to the Act, of any securities of the Company which are registered in
the name of or beneficially owned by it or he or she, respectively. During the
24 month period commencing on the effective date of the Registration Statement,
the Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) None of the Company, the Subsidiaries, nor any of its or their
respective officers, directors, stockholders, nor any of its or their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
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(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(k) and 6(l) hereof.
(p) The Company shall cause the Common Stock and Redeemable
Warrants to be quoted on Nasdaq and, for a period of seven (7) years from the
date hereof, use its best efforts to maintain the Nasdaq quotation of the Common
Stock and the Redeemable Warrants to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock and Redeemable
Warrants (ii) the list of holders of all of the Company's securities and (iii) a
Blue Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that it will not, for a period of
twelve (12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more of the Common Stock, except
as provided in subsection (ii) of this subparagraph; (ii) the maximum number of
shares of Common Stock or other securities of the Company purchasable at any
time pursuant to options or warrants issued by the Company to exceed the
aggregate 450,000 shares reserved for future issuance under the Company's Stock
Option Plan described in footnote one (1) to the "Prospectus Summary - The
Offering" section of the Prospectus; (iii) the payment for such securities with
any form of consideration other than cash; or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
(t) Until the completion of the distribution of the Securities,
the Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
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<PAGE>
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments to
the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of the
Redeemable Warrants or Representative's Warrants remain outstanding.
(v) Commencing one year and one day from the date hereof, if the
Company engages the Representative as a warrant solicitation agent under the
terms of the Warrant Agreement, the Company shall pay the Representative a
commission equal to five percent (5%) of the exercise price of the Redeemable
Warrants, payable on the date of the exercise thereof on the terms provided in
the Warrant Agreement; provided, however, the Representative shall be entitled
to receive the commission contemplated by this Section 4(v) only if: (i) the
Representative has provided actual services in connection with the solicitation
of the exercise of a Redeemable Warrant by a Warrantholder and (ii) the
Warrantholder exercising a Redeemable Warrant affirmatively designates in
writing on the exercise form on the reverse side of the Redeemable Warrant
Certificate that the exercise of such Warrantholder's Redeemable Warrant was
solicited by the Representative.
(w) For a period of one (1) year after the effective date of the
Registration Statement, the Company shall cause one (1) individual selected by
the Representative to be elected to the board of directors of the Company, if
requested by the Representative. In the event that the Representative shall not
have designated such individual at the time of any meeting of the Company's
board of directors or in the event that such individual has not been elected or
is unavailable to serve, the Company shall notify the Representative of each
meeting of its board of directors and, in such event, an individual selected by
the Representative shall be permitted to attend all meetings of the Company's
board of directors as a non-voting advisor and to receive all notices and other
correspondence and communications sent by the Company to the members of its
board of directors. Such board member or non-voting advisor shall receive no
more or less compensation than is paid to other non-officer directors of the
Company for attendance at meetings of the Company's board of directors and such
board member or non-voting advisor shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but not
limited to, food, lodging and transportation. The Company hereby agrees to
indemnify and hold such director or non-voting advisor harmless, to the maximum
extent permitted by law, against any and all actions, suits, proceedings,
inquiries, arbitrations, investigations, litigation, governmental or other
proceedings, domestic or foreign, and awards and judgments arising out of such
individual's service as a director or non-voting advisor and, in the event that
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, and/or in the event that the Company has
entered into an indemnification agreement with any of its officers or directors,
the Company agrees to include such director or non-voting advisor as an insured
under such insurance policy and/or to enter into an indemnification agreement
with such director or non-voting advisor which is at least as favorable
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<PAGE>
to such individual as any indemnification agreement that the Company has entered
into with any of its officers or directors. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the maximum extent
possible, extend to the Representative insofar as it may be or may be alleged to
be responsible for such director or non-voting advisor. The Company agrees to
provide its outside directors with compensation as deemed appropriate and
customary for similar companies.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing (including mailing and
handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, and (z) resale of
the Firm Securities and the Option Securities by the Underwriters in connection
with the distribution contemplated hereby, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any, (viii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees
and expenses incurred in connection with the quotation of the Securities on
Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the
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Underwriters for all of their actual out-of-pocket expenses, including the fees
and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
2(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
Redeemable Warrants and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which,
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in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representative shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Robinson & Cole, counsel to the Company, dated the Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
i. each of the Company and the Corporate Practices (A) has been
duly organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, and (C) has all
requisite corporate power and authority; each of the Company and the
Subsidiaries has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business
as described in the Prospectus; each of the Company and the Subsidiaries
is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state and local laws, rules and regulations;
and, none of the Company nor the Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely
affect the business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company and the
Subsidiaries taken as whole. The disclosures in the Registration
Statement concerning the effects of federal, state and local laws, rules
and regulations on each of the Company's and the Subsidiaries' businesses
as currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact required to be stated therein or
necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
ii. except as described in the Prospectus, none of the Company nor
the Subsidiaries owns an interest in any other corporation, partnership,
joint venture, trust or other business entity;
iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under
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"CAPITALIZATION", and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue,
sell, transfer, purchase or redeem any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement and as described in
the Prospectus. The Securities and all other securities issued or
issuable by the Company conform in all material respects to all
statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation
of the preemptive rights of any holders of any security of the Company or
any similar rights granted by the Company. The Securities to be sold by
the Company hereunder and under the Warrant Agreement and the
Representative's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form. The
Representative's Warrants and the Redeemable Warrants constitute valid
and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to
this Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters and
the Representative, respectively, will acquire good and marketable title
to the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, and the purchase by the
Representative of the Representative's Warrants from the Company (C) the
consummation by the Company of any of its obligations under this
Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
iv. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;
v. each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and
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other financial and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material respects with
the requirements of the Act and the Rules and Regulations.
vi. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or any Subsidiary is a
party or by which it is bound, including any document to which the
Company or any Subsidiary is a party or by which it is bound,
incorporated by reference into the Prospectus and any supplement or
amendment thereto, are accurate and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or threatened
against any of the Company or the Subsidiaries any action, arbitration,
suit, proceeding, inquiry, investigation, litigation, governmental or
other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give rise to the
same), or involving the properties or business of any of the Company or
the Subsidiaries which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in
all respects), (y) questions the validity of the capital stock of the
Company or this Agreement, the Warrant Agreement, the Affiliation
Agreements or the Representative's Warrant Agreement, or of any action
taken or to be taken by the Company pursuant to or in connection with any
of the foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described as
required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting any of the Company or the Subsidiaries
before any court or arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is a
reasonable possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of any of the Company or the
Subsidiaries, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement,
the Warrant Agreement, the Affiliation Agreements or the Representative's
Warrant Agreement or which in any manner draws into question the validity
or enforceability of this Agreement, the Warrant Agreement, the
Affiliation Agreements or the Representative's Warrant Agreement;
vii. the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement, the Affiliation
Agreements and the Representative's Warrant Agreement, and to consummate
the transactions provided for therein; and each of this Agreement, the
Warrant Agreement, the Affiliation Agreements and the Representative's
Warrant Agreement has been duly authorized, executed and delivered by
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the Company. Each of this Agreement, the Warrant Agreement, the
Affiliation Agreements and the Representative's Warrant Agreement,
assuming due authorization, execution and delivery by each other party
thereto constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement, the
Warrant Agreement, the Affiliation Agreements and the Representative's
Warrant Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or therein, or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of any of the Company or the Subsidiaries
pursuant to the terms of, (A) the certificate of incorporation or by-laws
of any of the Company or the Corporate Practices, (B) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders agreement, note, loan
or credit agreement or any other agreement or instrument to which any of
the Company or the Subsidiaries is a party or by which it is or they are
or may be bound or to which any of its or their respective properties or
assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to any of the Company or the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over any of the Company or the Subsidiaries or any of
its or their respective activities or properties.
viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the Firm
Securities and the Option Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants,
the performance of this Agreement, the Warrant Agreement, the Affiliation
Agreements and the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
ix. the properties and business of each of the Company and the
Subsidiaries conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of
any kind whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
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x. none of the Company nor the Subsidiaries is in breach of, or in
default under, any term or provision of any license, contract, collective
bargaining agreement, indenture, mortgage, installment sale agreement,
deed of trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which any of the Company or the
Subsidiaries is a party or by which any of the Company or the
Subsidiaries may be bound or to which the respective properties or assets
(tangible or intangible) of any of the Company or the Subsidiaries is
subject or affected; and none of the Company nor the Subsidiaries is in
violation of any term or provision of its Articles of Incorporation or
By-Laws or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
xi. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xii. the Securities have been accepted for quotation on Nasdaq;
xiii. the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act) of
the securities set forth opposite their respective names thereunder as
and to the extent set forth therein;
xiv. none of the Company, the Subsidiaries nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of any of the Company or the Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental
agency or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who is or may be in a position to help or hinder the business of
any of the Company or the Subsidiaries (or assist it in connection with
any actual or proposed transaction) which (A) might subject any of the
Company or the Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (B) if not given in
the past, might have had an adverse effect on the assets, business or
operations of the Company and the Subsidiaries taken as a whole, as
reflected in any of the financial statements contained in the
Registration Statement, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company and the Subsidiaries taken as a whole;
xv. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement,
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<PAGE>
require the Company to file any registration statement or, if filed, to
include any security in such registration statement;
xvi. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
xvii. assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
xviii. each of the Company and the Subsidiaries is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An
Act Relating to Disclosure of Doing Business with Cuba;
xix. none of the Company, the Subsidiaries or any of their
respective affiliates shall be subject to the requirements of or shall be
deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company and the
Subsidiaries, at which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed the contents of the Preliminary
Prospectus, the Registration Statement, the Prospectus, and related matters and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to
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<PAGE>
the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of each of the Company and the Subsidiaries and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of each of the Company and the Corporate Practices, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Representative, Underwriters' Counsel and they are
each justified in relying thereon. Any opinion of counsel for the Company and
the Subsidiaries shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991) or any comparable state accord.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of ______________, regulatory counsel to the Company and the
Subsidiaries, dated the Closing Date, addressed to the Underwriters, in form and
substance satisfactory to Underwriters' Counsel and in substantially the form of
Schedule B hereto.
(f) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of each of Robinson & Cole, counsel to the
Company and the Subsidiaries, and ______________, regulatory counsel to the
Company and the Subsidiaries, dated such Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of such Option Closing Date the statements made by each of
Robinson & Cole, and ______________, in their respective opinions delivered on
the Closing Date.
(g) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
(h) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of any of the Company
or the Subsidiaries, whether or not in the ordinary course of business, from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by any of the Company or the
Subsidiaries, from the latest date as of which the financial condition of the
Company and the Subsidiaries is set forth in the Registration Statement and
Prospectus which is adverse to the Company and the Subsidiaries; (iii) none of
the Company nor the Subsidiaries shall be in default
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<PAGE>
under any provision of any instrument relating to any outstanding indebtedness;
(iv) none of the Company nor the Subsidiaries shall have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there has not been
any change in the capital stock or any material change in the debt (long or
short term) or liabilities or obligations of any of the Company or the
Subsidiaries (contingent or otherwise); (v) no material amount of the assets of
any of the Company or the Subsidiaries shall have been pledged or mortgaged,
except as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been pending or
threatened (or circumstances giving rise to same) against any of the Company or
the Subsidiaries, or affecting any of its or their respective properties or
businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, earnings, position,
value, properties, results of operations, prospects or financial condition or
income of the Company and the Subsidiaries; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(i) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of each
of such person's knowledge, are contemplated or threatened under the
Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) none of the
Company nor the Subsidiaries has incurred up to and including the
Closing Date or the Option Closing Date, as the case may
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<PAGE>
be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) none of the
Company nor the Corporate Practices has paid or declared any dividends
or other distributions on its capital stock; (c) none of the Company nor
the Subsidiaries has entered into any transactions not in the ordinary
course of business; (d) there has not been any change in the capital
stock or long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the ordinary
course of business) of any of the Company or the Subsidiaries; (e) none
of the Company nor the Subsidiaries has sustained any loss or damage to
its or their respective properties or assets, whether or not insured;
(f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against any of the Company or the
Subsidiaries or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented Prospectus which
has not been set forth; and (g) there has occurred no event required to
be set forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young, LLP:
i. confirming that they are independent certified public
accountants with respect to the Company and the Subsidiaries within the
meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the financial statements
and supporting schedules of the Company and the Subsidiaries included in
the Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Ernst & Young, LLP with respect to the consolidated financial
statements and supporting schedules included in the Registration
Statement;
iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and the Subsidiaries, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the boards of directors of each of the Company and
the Corporate Practices, consultations with officers and other employees
of each of the Company and the Subsidiaries responsible for financial
and accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the pro forma financial information contained in the
Registration
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Statement and Prospectus does not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations or is not fairly presented in conformity with
generally accepted accounting principles applied on a basis consistent
with that of the audited financial statements of the Company and the
Subsidiaries or the unaudited pro forma financial information included
in the Registration Statement, (B) the unaudited financial statements
and supporting schedules of the Company and the Subsidiaries included in
the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
of the Company and the Subsidiaries included in the Registration
Statement, or (C) at a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of any of the Company or
the Subsidiaries, or any decrease in the stockholders' equity or net
current assets or net assets of any of the Company or the Subsidiaries
as compared with amounts shown in the March 31, 1997 balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or decrease, and
(D) during the period from March 31, 1997 to a specified date not more
than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or
increase in net earnings per common share of any of the Company or the
Subsidiaries, in each case as compared with the corresponding period
beginning March 31, 1996, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease, setting
forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company and the
Subsidiaries set forth in the Prospectus in each case to the extent that
such amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and the Subsidiaries and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young, LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (k) of this Section, except that the specified date referred to shall
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be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (k) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(m) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(p) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(r) On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
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Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Nasdaq or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in strict conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use
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<PAGE>
therein and constitute the only information furnished in writing by or on behalf
of the Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
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<PAGE>
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company or the Underwriter
within the meaning of the Act, each officer of the Company who has signed the
Registration Statement, and each director of the Company shall have the same
rights to contribution as the Company or the Underwriter, as the case may be,
subject in each case to this subsection (d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The
35
<PAGE>
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, Nasdaq,
the NASD, the Boston Stock Exchange, the Commission or any governmental
authority having jurisdiction over such matters; or (iv) if trading of any of
the securities of the Company shall have been suspended, or any of the
securities of the Company shall have been delisted, on any exchange or in any
over-the-counter market; (v) if the United States shall have become involved in
a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium has been declared
by a state or federal authority; or (vii) if a moratorium in foreign exchange
trading has been declared; or (viii) if the Company shall have sustained a loss
material or substantial to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Representative's opinion,
make it inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to
36
<PAGE>
proceed with the offering, sale and/or delivery of the Securities or (x) if
Robert Schulhof shall no longer serve the Company in his present capacity.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representative, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
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<PAGE>
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with
a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be
directed to the Company at 3621 Silver Spur Lane, Acton, California 93510,
Attention: Robert Schulhof, Chief Executive Officer, with a copy to: Robinson &
Cole, One Boston Place, Boston, Massachusetts 02108- 4404, Attention: David
Garbus, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
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<PAGE>
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representative's Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
OMEGA ORTHODONTICS, INC.
By:
----------------------------
Robert Schulhof
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
NATIONAL SECURITIES CORPORATION
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
-------------------------------
Steven A. Rothstein
Chairman
<PAGE>
SCHEDULE A
----------
===============================================================================
Number of Firm
Securities
Name of Underwriters to be Purchased
- -------------------------------------------------------------------------------
National Securities Corporation..............................
- -------------------------------------------------------------------------------
Total........................................................ 1,800,000
=========
===============================================================================
<PAGE>
SCHEDULE B
----------
At the Closing Date, the Underwriters shall have received the
favorable opinion of ___________________, special health care regulatory counsel
to the Company and the Subsidiaries, dated the Closing Date, addressed to the
Underwriters, in form and substance satisfactory to Underwriters' Counsel to the
effect that:
i. the statements in the Prospectus under "RISK FACTORS--State
Laws Regarding Prohibition of Corporate Practice of Orthodontics,"
"RISK FACTORS--Government Regulation" and "BUSINESS--Government
Regulation" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions, are correct in all material
respects, do not contain any untrue statement of a material fact and
do not omit to state a fact required to be stated therein or necessary
to make the statements contained therein not misleading;
ii. to the best of such counsel's knowledge, the Company and
the Subsidiaries are in compliance in all material respects with all
federal, state, local and foreign rules, orders, regulations with
respect to the Company's business as currently conducted and as
contemplated;
iii. each of the Company and the Subsidiaries has obtained all
necessary and required approvals, authorizations, licenses, orders,
permits, certificates and franchises of and from all governmental or
regulatory officials and bodies, domestic and foreign, to conduct its
respective business as described in the Prospectus; and none of such
approvals, authorizations, licenses, orders, permits, certificates and
franchises have been revoked, restricted or limited in any matter and
all of such approvals, authorizations, licenses, orders, permits,
certificates and franchises are in full force and effect;
iv. to the best of such counsel's knowledge, there is no
action, suit, proceeding, inquiry, investigation, litigation or
governmental proceeding, domestic or foreign, pending or threatened
(or circumstances that may give rise to the same) against or affecting
any of the Company or the Subsidiaries before any court or arbitrator
or governmental body, agency or official in which there is a
reasonable possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of any of the Company or
the Subsidiaries.
Exhibit 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of this 31st day of August, 1996 (the "Effective Date") by and between OMEGA
ORTHODONTICS, INC., a Delaware corporation (the "Buyer"), and THE ORTHODONTIC
MANAGEMENT EFFECTIVENESS GROUP OF AMERICA, LLC, a California limited liability
company (the "Seller").
WHEREAS, the Seller operates an orthodontic practice management and
consulting business (the "Business"); and
WHEREAS, the Buyer wishes to purchase the Purchased Assets, it being the
intention of the Buyer to employ such Purchased Assets as part of its own
business and not to continue the Seller's enterprise as such, it being
understood that the Buyer shall not be deemed to be a successor to, or a
continuation of, the Seller; and
WHEREAS, subject to the foregoing, the Seller desires to sell and the Buyer
desires to purchase the Purchased Assets, in accordance with the terms,
conditions, and agreements hereinafter contained.
NOW, THEREFORE, in consideration of the mutual premises and the covenants
and promises hereinafter contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section 1. Sale and Purchase of Assets.
1.1 Sale of Purchased Assets. On the terms and subject to the conditions
set forth in this Agreement, on the Effective Date, the Seller will sell,
convey, transfer and assign to the Buyer, and the Buyer will purchase and accept
from the Seller, all right, title and interest in and to certain of the assets
of the Seller used in or related to the Business which are identified on the
attached Schedule 1.1, as such assets shall exist on the Effective Date
(collectively, the "Purchased Assets"), free and clear of all Liens (as defined
below).
1.2 Excluded Assets. Any provisions of this Agreement to the contrary
notwithstanding, there shall be excluded from the purchase and sale contemplated
hereunder those assets of the Seller which are not described on the attached
Schedule 1.1, which assets shall not be considered or treated as Purchased
Assets (the "Excluded Assets").
1.3 Method of Conveyance.
(a) Upon payment of the Purchase Price described in Section 2, the
<PAGE>
sale, transfer, conveyance, assignment and delivery by the Seller of the
Purchased Assets to the Buyer in accordance with Section 1.1 shall be effected
by the Seller's execution and delivery of one or more bills of sale,
assignments, and other instruments of conveyance and transfer.
(b) On the Effective Date, the Seller shall sell, transfer, convey, assign
and deliver to the Buyer absolute title to and exclusive possession of all of
the Purchased Assets free and clear of any and all Liens, mortgages,
encumbrances, claims, conditional sales agreements, charges, security interests,
rights of the Seller and any third party, rights of redemption, equities, and
any other restrictions of any kind or nature whatsoever (individually, a "Lien"
and collectively, "Liens"), and subject only to the Assumed Obligations.
1.4 Assumed Obligations. On the Effective Date, the Buyer shall assume and
shall, subject to all rights of offset, defenses, causes of action,
counterclaims and claims of any nature against third parties that may be
available to the Buyer in respect of the Assumed Obligations, agree to satisfy
and discharge, as the same shall become due, all of the Seller's obligations
under the contracts, agreements and commitments of the Seller which are
specifically identified in Schedule 1.4 (the "Contracts") and are assigned to
the Buyer on the Effective Date, if and to the extent assignable, but only to
the extent any such obligations arise and accrue after the Effective Date and
then only in respect of events and time periods occurring after the Effective
Date (collectively, the "Assumed Obligations").
1.5 Excluded Obligations. The Buyer is not assuming, and the Seller shall
remain fully responsible for, all past, present and future indebtedness,
liabilities, obligations, contracts and commitments of the Seller and any
predecessors in interest of the Business, known or unknown, fixed or contingent,
whether arising out of or resulting from the Business or the assets thereof, or
otherwise, that are not Assumed Obligations (the "Excluded Obligations").
Without limiting the foregoing, the Excluded Obligations shall include, but not
be limited to, any and all liabilities arising from or related to:
(a) the negligent acts or omissions of the Seller, whether in tort or
otherwise;
(b) any suits, actions, or claims alleging infringement by the Seller,
prior to the Effective Date, of patents, trademarks, trade names, copyrights or
other intellectual property rights held by others;
(c) any other suits, actions or claims against the Seller; and
(d) any liability or obligation relating to an Excluded Asset.
All Excluded Obligations shall remain the sole responsibility of the
Seller, and the Seller agrees to pay, perform, discharge, and indemnify, in
accordance with Section 5.2
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hereof, the Buyer from and against, any and all such indebtedness, obligations
and liabilities.
Section 2. Purchase Price. On the Effective Date, the Seller shall convey,
transfer, assign and deliver to the Buyer the Purchased Assets in exchange for
(a) the Buyer's assumption of the Assumed Obligations; and (b) the Buyer's
issuance to the Seller of one million-fifty thousand (1,050,000) shares (the
"Shares") of the common stock, par value $.01 per share, of the Buyer (the
"Common Stock").
Section 3. Representations and Warranties.
3.1 Seller. The Seller hereby represents and warrants to the Buyer, all of
which representations and warranties are true, complete, and correct in all
respects as of the date hereof, as follows:
(a) Organization and Qualification. The Seller is a limited liability
company duly organized, validly existing and in good standing under the laws of
the state of California. The Seller has all requisite power and authority to own
those properties and conduct those businesses presently owned or conducted by
it. The copies of the Articles of Organization and the Operating Agreement of
the Seller, which have been delivered to the Buyer, are complete and correct and
are in full force and effect at the date hereof.
(b) Authorization; No Restrictions, Consents or Approvals. The Seller has
full power and authority to enter into and perform this Agreement and the
Ancillary Agreements (as defined below) and all corporate and member action
necessary to authorize the execution and delivery of this Agreement and the
Ancillary Agreements and the performance hereunder and thereunder has been duly
taken. This Agreement and the Ancillary Agreements have been duly executed by
the Seller and constitute the legal, valid, binding and enforceable obligations
of the Seller, enforceable against the Seller in accordance with their terms.
The execution and delivery of this Agreement and the Ancillary Agreements, the
sale of the Purchased Assets and the consummation by the Seller of the
transactions contemplated herein and therein, do not (i) conflict with or
violate any of the terms of the Articles of Organization or the Operating
Agreement of the Seller or any applicable law, (ii) conflict with, or result in
a breach of any of the terms of any Contract or constitute a default thereunder,
(iii) result in the creation or imposition of any Lien on any of the Purchased
Assets, (iv) constitute an event permitting termination of any Contract pursuant
to the terms of such Contract, or (v) conflict with, or result in or constitute
a default under or breach or violation of or grounds for termination of, any
license, permit or other governmental authorization to which the Seller is a
party or by which the Seller may be bound, or result in the violation by the
Seller of any law, statute, rule, regulation, judgment, writ, injunction, decree
or order to which the Seller or any assets of the Seller may be subject, which
would materially adversely affect the transactions contemplated herein. No
authorization, consent or approval of, notice to, or filing with, any public
body or governmental authority or any other person is necessary in connection
with the execution and delivery by the Seller of this Agreement and the
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<PAGE>
Ancillary Agreements or the performance by the Seller of its obligations
hereunder or thereunder.
(c) Title to Properties. The Seller has good and marketable title to all of
the Purchased Assets, free and clear of any Lien.
(d) Contracts and Other Documents. Schedule 1.4 sets forth a complete and
accurate listing or description of all Contracts to which the Seller is a party
in connection with the Business. Each of the Contracts is valid, binding and
enforceable in accordance with its terms, and is in full force and effect; there
are no existing defaults on the part of the Seller or, to the best of the
Seller's knowledge, any other party, under any Contract, and no event of default
under any such Contract has occurred and is continuing which (whether with or
without the giving of notice, lapse of time or both, or the happening of any
other event) would constitute a default under such Contract; each such Contract
will continue to be in full force and effect on the same terms and conditions
immediately after the Effective Date without the need for any action on the part
of the Buyer, except for the Buyer's performance of the Assumed Obligations; to
the best of the Seller's knowledge, each such Contract reflects the complete
understanding among the parties thereto; and accurate and complete copies of
each such Contract including all amendments thereto, have been delivered to the
Buyer at or prior to the date hereof. The Seller's interest in each of the
Contracts is free and clear of all Liens or other encumbrances (other than any
created by the Buyer). Neither the Seller nor any other party is in default
under any Contract.
(e) Compliance With Law. The Seller has at all times operated in all
respects and is presently in compliance with all applicable federal, state,
local, foreign or other laws, rules, regulations, guidelines, orders,
injunctions, building and other codes, ordinances, permits, licenses,
authorizations, judgments, decrees of federal, state, local, foreign or other
authorities, and all orders, writs, decrees and consents of any governmental or
political subdivision or agency thereof, or any court or similar person
established by any such governmental or political subdivision or agency thereof,
including but not limited to all applicable domestic and foreign laws, rules and
regulations relating to the safe conduct of business, employment discrimination,
wages and hours, employment of illegal aliens, collective bargaining, the
payment of withholding and social security taxes, product labeling, antitrust,
consumer protection, occupational safety and health, consumer product safety,
the importation of goods, product liability, currency exchange, securities and
trading with the enemy matters, and to the best of the Seller's knowledge no
event has occurred which would constitute reasonable grounds for a claim that
non-compliance has occurred or is occurring.
(f) Intellectual Property. The Seller owns or possesses valid and binding
licenses or other rights to use, whether or not registered, all intellectual
property and intangible assets used or useful in the Business (the "Intellectual
Property"). Schedule 3.1(f) sets forth a complete and accurate list of all such
Intellectual Property (identifying those owned and those licensed), including
all United States, state and
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foreign registrations or applications for registration thereof and all
agreements (including, without limitation, agreements pursuant to which the
Seller has granted licenses to third parties to use any Intellectual Property)
relating thereto. All actions necessary to maintain the registered Intellectual
Property have been taken by the Seller. The Seller is not required to pay any
royalty, license fee or similar compensation with respect to the Intellectual
Property in connection with the current or prior conduct of the Business. The
use by the Seller of any of the Intellectual Property does not violate the
proprietary rights of any other person and no claims have been asserted by any
person with respect to the use of the Intellectual Property by the Seller. To
the best of the Seller's knowledge, no person is infringing upon the
Intellectual Property. The Seller has taken reasonable security measures to
protect the secrecy, confidentiality and value of the Intellectual Property. No
person, other than the Seller, owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part, in any Intellectual Property.
(g) Investment Representations. The Seller (i) was not organized for the
specific purpose of acquiring the Shares; (ii) has sufficient knowledge and
experience in investing in companies similar to the Buyer so as to be able to
evaluate the risks and merits of its investment in the Buyer and is able
financially to bear the risks thereof; (iii) has had a full and adequate
opportunity to discuss the Buyer's business, management and financial affairs
with the Buyer's management; (iv) is acquiring the Shares for its own account
for the purpose of investment and not with view to or for sale in connection
with any distribution thereof; and (v) understands that (w) the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act") by
reason of the issuance of the Shares in a transaction exempt from the
registration requirements of the Act pursuant to Section 4(2) thereof or Rule
505 or 506 promulgated under the Act, (x) the Shares must be held indefinitely
unless a subsequent disposition thereof is registered under the Act or is exempt
from such registration, (y) the Shares will bear a legend to such effect and (z)
the Buyer will make a notation on its transfer books to such effect.
3.2 Buyer. The Buyer hereby represents and warrants to the Seller, all of
which representations and warranties are true, complete, and correct in all
respects as of the date hereof, as follows:
(a) Organization and Qualification. The Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware.
(b) Authorization; No Restrictions, Consents or Approvals. The Buyer has
full corporate power and authority to enter into and perform this Agreement and
the General Assignment and Assumption Agreement and to issue the Shares, and has
taken all necessary action to authorize the execution and delivery of this
Agreement and the General Assignment and Assumption Agreement and the issuance
and sale of the Shares and the performance by the Buyer of its obligations
hereunder and thereunder. This Agreement and the General Assignment and
Assumption Agreement have been duly executed by the Buyer and constitute the
legal, valid, binding, and enforceable
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obligations of the Buyer. The execution and delivery of this Agreement and the
General Assignment and Assumption Agreement and the consummation by the Buyer of
the transactions contemplated herein and therein, do not and will not on the
Effective Date (i) conflict with or violate any of the terms of the Buyer's
Certificate of Incorporation or By-laws or any applicable law, or (ii) conflict
with, or result in a breach of any of the terms of, or result in the
acceleration of any indebtedness or obligations under, any agreement,
obligation, or instrument by which the Buyer is bound or to which any property
of the Buyer is subject, or constitute a default thereunder. No authorization,
consent, or approval of any governmental authority or any other person is
necessary or required in connection with the execution and delivery by the Buyer
of this Agreement and the General Assignment and Assumption Agreement or the
performance by the Buyer of the Buyer's obligations hereunder and thereunder.
(c) Authorized Capital Stock ; The Shares. As of the Effective Date, the
authorized capital stock of the Buyer shall consist of 10,000,000 shares of
Common Stock, 450,000 of which shall be issued and held in escrow for delivery
upon completion of the Buyer's initial public offering of its Common Stock (the
"Escrow Shares"). Upon release of the escrow, the Escrow Shares will be validly
issued and outstanding, fully paid and non-assessable shares of the Common
Stock. As of the Effective Date, the Shares shall have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and non-assessable shares of the Common Stock.
Section 4. Closing.
4.1 Buyer's Closing Documents. On the Effective Date, the Buyer will
deliver to the Seller, in form and substance reasonably satisfactory to the
Seller and consistent with this Agreement:
(a) The General Assignment and Assumption Agreement relating to the Assumed
Obligations (the "General Assignment").
(b) A certificate evidencing the Shares.
(c) Such other documents as the Seller shall reasonably request.
4.2 Seller's Closing Documents. On the Effective Date, the Seller will
deliver to the Buyer, in form and substance reasonably satisfactory to the
Buyer, all consents required under the Contracts, and appropriate documents to
effect or evidence the sale, conveyance, assignment and transfer to the Buyer of
the Purchased Assets as contemplated hereby and necessary to place the Buyer,
its officers, agents and employees in full possession and enjoyment of all the
Purchased Assets as contemplated hereby, including the following:
(a) The General Bill of Sale and Assignment relating to the Purchased
Assets (the "Bill of Sale").
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(b) Such other documents (collectively, with the General Assignment and the
Bill of Sale, the "Ancillary Agreements") as the Buyer shall reasonably request.
4.3 Further Assurances. The Seller from time to time after the Effective
Date, at the Buyer's request, will execute, acknowledge and deliver to the Buyer
such other instruments of conveyance and transfer and will take such other
actions and execute and deliver such other documents, certifications and further
assurances as the Buyer may reasonably require in order to vest more effectively
in the Buyer, or to put the Buyer more fully in possession of, any of the
Purchased Assets. Each of the parties hereto will cooperate with the other and
execute and deliver to the other party hereto such other instruments and
documents and take such other actions as may be reasonably requested from time
to time by the other party as necessary to carry out, evidence and confirm the
intended purposes of this Agreement.
Section 5. Survival of Representations and Warranties; Indemnification.
5.1 Survival of Representations and Warranties and Covenants. The
representations, warranties, covenants, and obligations of the Buyer and the
Seller set forth in this Agreement and the Ancillary Agreements and in any
certificate, agreement, or instrument delivered in connection with the
transactions contemplated hereby or thereby shall survive the Effective Date for
three years.
5.2 Indemnification. Each party (the "Indemnifying Party") agrees to
defend, indemnify and hold the other party (the "Indemnified Party") harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees and disbursements) of any kind or nature whatsoever
which may be sustained or suffered by the Indemnified Party based upon a breach
of any representation, warranty or covenant made by the Indemnifying Party in
this Agreement, the Ancillary Agreements or in any schedule, exhibit or
certificate delivered hereunder, or by reason of any claim, action or proceeding
asserted or instituted growing out of any matter or thing covered by such
representations, warranties or covenants.
Section 6. General Provisions.
6.1 Sales and Transfer Taxes. The Seller shall pay any and all taxes,
federal, state, or local, in the nature of income, sales, conveyance, recording,
or transfer taxes required to be paid in respect of the conveyance, assignment,
or transfer to the Buyer of the Purchased Assets and the filing and recording
thereof.
6.2 Amendment and Waiver. This Agreement may not be changed or terminated
orally. No waiver of compliance with any provision or condition hereof, and no
consent provided for herein, shall be effective unless evidenced by an
instrument in writing duly executed by the party hereto sought to be charged
with such waiver or
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consent.
6.3 Miscellaneous. The Section headings of this Agreement are for
convenience of reference only and do not form a part hereof and do not in any
way modify, interpret, or construe the intentions of the parties. This Agreement
may be executed in one or more counterparts and all such counterparts shall
constitute one and the same instrument. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the conflict of laws principles thereof.
6.4 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective administrators, legal
representatives, successors and permitted assigns.
6.5 Complete Agreement. This Agreement, the Ancillary Agreements and the
exhibits and schedules and other documents referred to herein contain the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersede all previous negotiations, commitments, and
writings.
6.6 Notices. Any notice, report, demand, waiver, consent or other
communication given by a party under this Agreement (each a "notice") shall be
in writing, may be given by a party or its legal counsel, and shall deemed to be
duly given (a) when personally delivered, or (b) upon delivery by United States
Express Mail or similar overnight courier service which provides evidence of
delivery, or (c) when five (5) days have elapsed after its transmittal by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party to whom directed, or (d) when transmitted by telex (or
equivalent service), the sender having received the answerback of the addressee,
or (e) when delivered by facsimile transmission if a copy thereof is also
delivered in person or by overnight courier. Notices of address change shall be
effective only upon receipt notwithstanding the provisions of the foregoing
sentence.
6.7 Assignment. Except as expressly provided herein, this Agreement and any
rights pursuant hereto shall not be assignable by the Seller without the prior
written consent of the Buyer.
6.8 Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provisions had not been
contained herein.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the date first above written.
OMEGA ORTHODONTICS, INC.
By: /s/ R. J. Schulhof
------------------------------
Name: R. J. Schulhof
Title: President
THE ORTHODONTIC MANAGEMENT
EFFECTIVENESS GROUP OF AMERICA, LLC
By: /s/ R. J. Schulhof
------------------------------
Name: R. J. Schulhof
Title: Manager
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SCHEDULE 1.1 -- THE PURCHASED ASSETS
Internal Equipment value $3928.08
2 IBM Compatible 486 Computers
1 HP Laserject 5p Printer
1 HP Scanjet 3c Scanner
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SCHEDULE 1.4 -- THE CONTRACTS
Agent Agreement: Glovsky/Mayflower
Ancillary Agreements:
David Grove
Robert Schmisseur
Ted Saydyk
Andrew Smick
Leroy Vego
Ray Fortson
Clark Schneekluth
Consulting Services Agreements
David Grove
Robert Schmisseur
Ted Saydyk
Andrew Smick
Ray Fortson
Donald Byk
Clark Cash
Clark Schneekluth
Agreement/Working Arrangements with Consultants
Dean Bellavia: Books at reduced rates plus $100 per month per practice
served; Scheduling at reduced rate -- $2,500 per practice
Sonny Elliott: $2,500 per in Practice Seminar, $300 per month for coaching
Bud Ham: $1,000 per practice survey
Maxine Logan: $500 per month plus materials for promotional programs for
practices
Facilities -- Agreements to use home offices as company facilities
11
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SCHEDULE 3.1(f) -- INTELLECTUAL PROPERTY
Legal agreements and research with respect to MSO affiliations
Right to Exceptional Practice and Perpetual Practice concepts
12
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GENERAL BILL OF SALE AND ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS, that as of the close of business on the
31st day of August, 1996, The Orthodontic Management Effectiveness Group of
America, LLC, a California limited liability company (the "Seller"), for good
and valuable consideration received on behalf of Omega Orthodontics, Inc., a
corporation formed under the laws of the State of Delaware (the "Buyer"), does
hereby grant, sell, convey, transfer, assign and deliver to Buyer, and Buyer
does hereby purchase from Seller all of Seller's right, title and interest in
those assets of Seller (the "Purchased Assets") described as being acquired by
Buyer on Schedule 1.1 attached hereto and incorporated herein by this reference.
Specifically excluded from the Purchased Assets being sold and assigned
hereunder are the "Excluded Assets" which are all the assets of Seller which are
not described on Schedule 1.1.
Anything herein to the contrary notwithstanding, no Purchased Assets shall
be deemed transferred or assigned pursuant to this instrument if any attempted
transfer or assignment of the same without the consent or approval of another
person or entity would in any way adversely affect the rights of Seller or Buyer
in the Purchased Assets. Seller covenants and agrees that in any such case the
beneficial interest in or to the Purchased Assets shall in any event pass
hereunder as of the date hereof to Buyer; and Seller covenants and agrees to use
its best efforts to obtain and secure any and all such consents and approvals
and take all actions necessary to put Buyer in actual possession and control of
the Purchased Assets purchased by Buyer.
Seller is lawfully seized of all the Purchased Assets and has clear title
to and good and lawful authority to convey the Purchased Assets to Buyer. The
Purchased Assets of Seller transferred, sold, assigned and conveyed to Buyer
hereby are free and clear of all liens, mortgages, encumbrances, claims,
conditional sales agreements, charges, security interests, rights of Seller and
any third party, rights of redemption, equities, and any other restrictions of
any kind and nature whatsoever.
Seller hereby irrevocably and unconditionally constitutes and appoints
Buyer (and its successors and assigns) the true and lawful attorneys of Seller
with full power of substitution and resubstitution on behalf of and for the
benefit of Seller and at the expense of Seller (i) to institute and prosecute
all proceedings which Buyer may deem necessary or proper in order to assert or
enforce any claim, right or title of any kind in or to the Purchased Assets
hereby
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sold, transferred or assigned, (ii) to defend and compromise any and all
actions, suits or proceedings in respect of any of the Purchased Assets hereby
sold, transferred or assigned and (iii) to take all such further acts and
actions in relation thereto as Buyer shall deem advisable. Seller covenants and
agrees that the foregoing powers are coupled with an interest and are and shall
be irrevocable.
Seller covenants and agrees that, at any time from time to time after the
delivery hereof, Seller will, upon the request of Buyer and at its expense,
execute, acknowledge and deliver, or will cause to be executed, acknowledged and
delivered, all such further deeds, assignments, transfers, conveyances, powers
of attorney or assurances and shall take or cause to be taken all such further
acts and actions as may be reasonably required for the better assigning,
transferring, granting, conveying, assuring and confirming to Buyer or for
aiding and assisting in the collection of or reducing to possession by Buyer of
any of the Purchased Assets hereby sold, transferred or assigned to Buyer.
This instrument and the covenants and agreements herein set forth shall
inure to the benefit of Buyer and its successors and assigns and shall be
binding upon Seller and its successors and assigns.
Seller will warrant and defend the sale of Purchased Assets against all and
every person or persons whomsoever claiming or to claim against any or all of
the same.
This instrument shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the conflict of law
principles thereof.
IN WITNESS WHEREOF, Seller, intending to be legally bound, has executed and
delivered, or caused to be duly executed and delivered on its behalf by its duly
authorized representative, this General Bill of Sale and Assignment as of the
day and date first above set forth.
ATTEST: THE ORTHODONTIC MANAGEMENT
EFFECTIVENESS GROUP OF AMERICA, LLC
By /s/ Diane Kessler By: /s/ R. J. Schulhof
--------------------- ----------------------
Name: R. J. Schulhof
Its: Manager
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SCHEDULE 1.1 -- THE PURCHASED ASSETS
Internal Equipment value $3928.08
2 IBM Compatible 486 Computers
1 HP Laserject 5p Printer
1 HP Scanjet 3c Scanner
15
Exhibit 2.2
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AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered into
as of the 10th day of March 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA"); Robert R. Schmisseur, D.D.S. ("Dr. Schmisseur"),
who is duly licensed to practice orthodontics in the state of Illinois (the
"State"); Robert R. Schmisseur, D.D.S., P.C., an Illinois professional
corporation (the "Orthodontic Entity"); and Omega Orthodontics of Champaign,
Inc., a Delaware corporation to be formed and to become a wholly owned
subsidiary of OMEGA ("Acquisition" and sometimes referred to herein as the
"Surviving Entity") (and which shall have joined herein by subsequently
executing this Agreement).
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 1701 South Prospect, Champaign, Illinois 61820 (the
"Orthodontic Offices") and furnishes orthodontic care to the general public
through the services of Dr. Schmisseur affiliated with the Orthodontic Entity.
C. Dr. Schmisseur presently holds 100% of the issued and outstanding
capital stock of the Orthodontic Entity (the issued and outstanding capital
stock is hereafter referred to herein as the "Interests").
D. Dr. Schmisseur owns all of the Interests, and desires to convert the
status of the Orthodontic Entity from a professional entity to a general purpose
entity and to form a new professional corporation or entity to continue his
orthodontic practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed
the Orthodontic Entity's unaudited financial and operations statement provided
by Dr. Schmisseur (the "Financial Statement"), a copy of which is attached
hereto as Exhibit A . Based on its review of the Orthodontic Entity and the
Financial Statement, OMEGA has issued the report (the "Report"), a copy of which
has been furnished to the Orthodontic Entity. The Orthodontic Entity and Dr.
Schmisseur have reviewed the Report and OMEGA's literature, and agree with the
Report and the concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Schmisseur have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into Acquisition (the "Merger") as
provided in Section 2.1 hereof.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Schmisseur shall
cause the Orthodontic Entity's charter ("Charter") to be amended to convert the
Orthodontic Entity into a general purpose entity under the laws of the State.
1.2 Dr. Schmisseur shall form a new professional entity (the "New PC")
under the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 OMEGA shall form Acquisition and shall cause Acquisition to join in
this Agreement by subsequently executing this Agreement where indicated below.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the terms
and conditions hereinafter set forth, the parties hereto agree to cause the
Merger to be consummated by filing with the Delaware Secretary of State and the
State Secretary of State (if required) a Certificate of Merger (the "Certificate
of Merger") in the form required by applicable law, duly executed and
acknowledged by the Surviving Entity, and taking all such further actions as may
be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and Acquisition will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
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(i) Two Hundred Eighteen Thousand, Forty Two Dollars
($218,042.00) in cash (the "Cash Component");
(ii) Two Hundred Eighteen Thousand, Forty Two Dollars
($218,042.00) to be represented by a promissory note (the "Purchase
Note") payable to Dr. Schmisseur (the "Note Component") in the form
attached hereto as Exhibit B; and
(iii) Two Hundred Eighteen Thousand, Forty Dollars ($218,040.00)
to be represented by issuance to Dr. Schmisseur of shares of OMEGA
common stock ("OMEGA Stock") based on a value per share equal to 100%
of the IPO Price (as defined below in Section 2.3) (the "Stock
Component"), which shall thereupon be issued to Dr. Schmisseur, fully
paid and nonassessable.
(c) At the Effective Time, each share of stock of Acquisition outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and without any action on the part of any holder thereof, continue and
shall be held by OMEGA.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations; (iii) any accounts payable of
the Orthodontic Entity which have accrued prior to the Effective Time and which
remain unpaid as of such time (the "Accounts Payable") in excess of an amount
equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity; (iv) and any other material adverse changes in the financial
condition or prospects of the Orthodontic Entity from the information provided
in the Financial Statement. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, second, to the Note
Component, and the balance, if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions contemplated
hereby (herein called the "Closing") shall be held immediately before the
Effective Time at the offices
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of Robinson & Cole, One Boston Place, Boston, Massachusetts 02108 on the date of
the closing of OMEGA's initial public offering of its securities (the "IPO
Closing") pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act") ("IPO"), or at such other place,
date or time as may be fixed by mutual agreement of the parties; provided,
however, that in no event shall the Closing date be extended beyond June 30,
1997. On or before the IPO Closing, OMEGA will notify the Orthodontic Entity of
the projected IPO Closing Date determined by OMEGA, in its sole discretion. As
used herein "IPO Price" shall mean the initial offering price to the public of
OMEGA Stock as reflected on the cover page of its Prospectus under the
Securities Act for the IPO.
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr.
Schmisseur shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure Acquisition and OMEGA of the
full benefit of the same.
(b) Evidence of malpractice insurance coverage for the current and five (5)
prior years, and if applicable, evidence of so-called "tail" insurance for such
period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Schmisseur and the Orthodontic
Entity in the attached Schedule 1 are hereby incorporated as if fully set forth
herein. The Representations and Warranties of OMEGA and Acquisition in the
attached Schedule 2 are hereby incorporated as if fully set forth herein.
Capitalized words and expressions used in this Agreement and which are defined
in said Schedules 1 and 2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. SCHMISSEUR
AND THE ORTHODONTIC ENTITY
Dr. Schmisseur and the Orthodontic Entity hereby covenant and agree with
OMEGA and Acquisition as follows:
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4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit D) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Schmisseur
or the Orthodontic Entity to suffer the revocation, suspension or limitation of
Dr. Schmisseur's or the Orthodontic Entity's license.
(h) permit OMEGA or Acquisition and its authorized representatives to have
full access to all its properties, assets, records, tax returns, company
records, contracts and documents and furnish to OMEGA or its authorized
representatives such financial and other Information with respect to its
business or properties as OMEGA may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Schmisseur and the Orthodontic Entity
of the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or
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referred to in this Agreement, they shall give detailed written notice thereof
to OMEGA and Acquisition and shall use their best efforts to prevent or promptly
remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA AND ACQUISITION.
OMEGA and Acquisition each hereby covenants and agrees with Dr. Schmisseur
and the Orthodontic Entity as follows:
5.1 Authorization from Others. Prior to the Closing, each will have
obtained all authorizations, consents and permits of others required to permit
the consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. Each shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA AND ACQUISITION
The obligations of OMEGA and Acquisition to consummate this Agreement and
the transactions contemplated hereby are subject to the condition that on or
before the Closing the actions required by this Article 6 will have been
accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of the Orthodontic Entity and Dr. Schmisseur contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr.
Schmisseur and the Orthodontic Entity shall have performed all of his or its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 New PC. Dr. Schmisseur shall have formed the New PC under the laws of
the State in order to commence the practice of orthodontics through the New PC.
Dr. Schmisseur shall have furnished (i) a certificate of the State Secretary of
State as to the legal existence and professional corporation good standing of
New PC; and (ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Schmisseur shall have executed and delivered, or
shall have caused the New PC to execute and deliver, to Acquisition a Management
Services
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Agreement and a Stock Put/Call Option and Successor Designation Agreement, each
having substantially the terms and conditions of the forms hereof collectively
attached hereto as Exhibit E .
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA or
Acquisition is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at Acquisition's expense, notify
all patients and obligors of accounts receivable, and third party payors and
others designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the form collectively attached
hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA and Acquisition. During the period from the date of the
Financial Statement to the Closing, there shall not have been any material
adverse change in the financial condition, results of operations, business or
prospects of the Orthodontic Entity, nor any material loss or damage to its
assets, whether or not insured, which materially affects the ability of
Orthodontic Entity to conduct its business. The Orthodontic Entity shall have
delivered to OMEGA a certificate, dated the date of Closing, to the foregoing
effect, and further to the effect that there are no Accounts Payable or other
liabilities as of the date of Closing that are not reflected on the Financial
Statement other than those which have been disclosed in writing to and accepted
in writing by OMEGA and Acquisition and which incurred since the date of the
Financial Statement in the ordinary course of business.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. SCHMISSEUR
The obligations of the Orthodontic Entity and Dr. Schmisseur to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations and
warranties of OMEGA and Acquisition contained in Schedule 2 shall be true and
correct as though made on and as of the Closing and each of OMEGA and
Acquisition shall have performed all of its obligations hereunder which by the
terms hereof are to be performed on or before the Closing.
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7.2 Acquisition. OMEGA shall have formed Acquisition and shall have caused
Acquisition to join in this Agreement.
7.3 Other Agreements. OMEGA and Acquisition shall have executed and
delivered to Dr. Schmisseur and New PC a Management Services Agreement and a
Stock Put/Call Option and Successor Designation Agreement, each having
substantially the terms and conditions of the forms hereof collectively attached
hereto as Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr.
Schmisseur is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after the
Closing, Dr. Schmisseur agrees to cause the New PC to implement the suggestions
in the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA and Acquisition shall permit Dr. Schmisseur,
his accountants and attorneys, reasonable access to such books and records for
the purpose of preparing such tax returns of Dr. Schmisseur as may be required
after the Closing and for other proper purposes approved by OMEGA and
Acquisition.
8.3 License. Dr. Schmisseur shall maintain all licenses necessary to
practice orthodontics in the State. Dr. Schmisseur shall not commit or fail to
commit any act which would cause Dr. Schmisseur or the New PC to suffer the
revocation, suspension or limitation of Dr. Schmisseur's or the New PC's
license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Schmisseur. Subject to the limitations set forth
in Section 9.3, Dr. Schmisseur agrees to defend, indemnify and hold each of
OMEGA and Acquisition harmless from and against any damages, liabilities, losses
and expenses (including reasonable counsel fees) of any kind or nature
whatsoever which may be sustained or suffered by OMEGA or Acquisition based upon
a breach of any representation, warranty or covenant made by the Orthodontic
Entity or Dr. Schmisseur in this Agreement or in any exhibit, certificate,
schedule or financial statement delivered hereunder, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
covered by such representations, warranties or
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covenants. OMEGA and Acquisition may at their option recover such
indemnification claims by OMEGA or Acquisition by set-off against amounts of
principal and interest due under the Purchase Note, but shall not be required to
recover said claims in such manner and may proceed against Dr. Schmisseur and
his transferees in liquidation at any time or times for recovery of
indemnification claims.
9.2 Indemnification By OMEGA and Acquisition. Subject to the limitations
set forth in Section 9.3, OMEGA and Acquisition, jointly and severally, each
agrees to defend, indemnify and hold Dr. Schmisseur harmless from and against
any damages, liabilities, losses and expenses (including reasonable counsel
fees) of any kind or nature whatsoever which may be sustained or suffered by Dr.
Schmisseur based upon a breach of any representation, warranty or covenant made
by OMEGA or Acquisition in this Agreement or in any exhibit, certificate,
schedule or financial statement delivered hereunder, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
covered by such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is
covered by insurance; and
(b) no indemnification shall be payable with respect to claims
asserted more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. Indemnification
claims by OMEGA or Acquisition may be paid or otherwise satisfied as an offset
against the Purchase Note as set forth under Section 9.1, and, in the
alternative or after any such offset, the indemnification claims (or any balance
thereof) shall be paid or otherwise satisfied by Dr. Schmisseur, or Dr.
Schmisseur's transferees in liquidation, within 30 days after notice thereof is
given by OMEGA or Acquisition. In the event an indemnification claim is made by
any party and the indemnifying party disputes the nature or amount of the claim,
such dispute shall be referred to the American Arbitration Association to be
settled by alternative dispute resolution in accordance with the commercial
alternative dispute resolution rules of said Association, with the fees and
expenses thereof to be borne 50% by Acquisition and 50% by the New PC and Dr.
Schmisseur. If the
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indemnifying party is New PC or Dr. Schmisseur, the arbitration shall be held in
Boston, Massachusetts, and if the indemnifying party is OMEGA or Acquisition,
the arbitration shall be held in Chicago, Illinois.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated
(i) by mutual consent of the parties with the approval of their respective board
of directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA or Acquisition if the conditions stated in Article VI have not been
satisfied at or prior to the Closing, or (iv) by Dr. Schmisseur if the
conditions stated in Article VII have not been satisfied at or prior to the
Closing.
(b) If the IPO is not successfully completed within six (6) months of
this Agreement, this Agreement may be terminated by OMEGA or Dr. Schmisseur upon
written notice to the other party, and if so terminated, all obligations of the
parties hereunder shall terminate without any further liability of either party
to the other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
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If to Dr. Schmisseur and the Orthodontic Entity, to:
Robert R. Schmisseur, D.D.S.
1701 South Prospect
Champaign, Illinois 61820
If to the OMEGA or Acquisition, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party will
promptly return to the other all copies of such other party's Confidential
Information.
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10.8 Governing Law; Severability. This Agreement shall be deemed a
contract made under the laws of the State of Delaware and, together with the
rights and obligations of the parties hereunder, shall be construed under and
governed by the laws of such state. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an
offer or payment to the other party or any affiliate of the other party of any
cash or other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Schmisseur.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Schmisseur, the Orthodontic Entity, OMEGA and Acquisition each agrees:
(a) to deliver such other instruments of title, certificates,
consents, endorsements, assignments, assumptions and other documents or
instruments, in form reasonably acceptable to the party requesting the same and
its counsel, as may be reasonably necessary to carry out and/or to comply with
the terms of this Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
Printed Name: Robert R. Schmisseur, D.D.S.
Robert R. Schmisseur, D.D.S., P.C.
By: /s/ Robert R. Schmisseur
----------------------------------
Printed Name: Robert R. Schmisseur, D.D.S.
Its
------------------------------
Duly Authorized
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<PAGE>
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
----------------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
JOINDER
Omega Orthodontics of Champaign, Inc. hereby joins in this Agreement as if
an original signator hereto.
Omega Orthodontics of Champaign, Inc.
By:
--------------------------------
Printed Name:
-----------------------
Its
---------------------------------
Duly Authorized
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Exhibit A
---------
Financial Statement
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<PAGE>
Exhibit B
---------
Purchase Note
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<PAGE>
Exhibit C
---------
Notices
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<PAGE>
Exhibit D
---------
Orthodontic Entity's Charter and
By-Laws
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<PAGE>
Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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Schedule 1
----------
Representations and Warranties of
Dr. Schmisseur and Orthodontic Entity to OMEGA and Acquisition
Each of the Orthodontic Entity and Dr. Schmisseur hereby represents and
warrants to OMEGA and Acquisition as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Schmisseur, attached
hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Schmisseur, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Schmisseur,
enforceable against the Orthodontic Entity and Dr. Schmisseur in accordance with
its terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Schmisseur or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr.
Schmisseur or the Orthodontic Entity is a party or by which their assets are
bound; or (d) any violation of any law, regulation, administrative order or
judicial order applicable to Dr. Schmisseur or the Orthodontic Entity, or their
business or assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Schmisseur or
the Orthodontic Entity is a party, or give any person the right to accelerate
any indebtedness or terminate any right; (iii) constitute (with or without the
passage of
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time or giving of notice) a default under or breach of any other agreement,
instrument or obligation to which the Orthodontic Entity or Dr. Schmisseur is a
party or by which their assets are bound; or (iv) result in a violation of any
law, regulation, administrative order or judicial order applicable to the
Orthodontic Entity, Dr. Schmisseur, their business or assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Schmisseur have all necessary licenses
to practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Schmisseur is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Schmisseur may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Schmisseur's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Schmisseur is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Schmisseur, the Financial Statement is complete and correct and fairly presents
in all material respects the financial position of the Orthodontic Entity as at
the date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Schmisseur to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Schmisseur is the
beneficial and record owner of the Interests. Dr. Schmisseur has good title to
the Interests, free and clear of any liens, encumbrances or restrictions of any
kind. The Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased
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by the Orthodontic Entity is in good repair, has been well maintained,
substantially conforms with all applicable ordinances, regulations and zoning or
other laws. The Equipment is in good working order.
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the Interests
or the Property, or the property subject to any lease, or which remains in
existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
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11. Litigation. Except for matters described on Exhibit X to this Schedule,
there is no action, suit, claim, proceeding or investigation pending or, to the
knowledge of the Orthodontic Entity or Dr. Schmisseur, threatened against the
Orthodontic Entity or Dr. Schmisseur, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality or governmental inquiry pending or, to the
knowledge of the Orthodontic Entity or Dr. Schmisseur, threatened against or
involving Dr. Schmisseur or the Orthodontic Entity, and there is no basis for
any of the foregoing, and there are no outstanding court orders, court decrees,
or court stipulations to which the Orthodontic Entity or Dr. Schmisseur is a
party which question this Agreement or affect the transactions contemplated
hereby, or which will result in any materially adverse change in the business,
properties, operations, prospects, assets or in the condition, financial or
otherwise, of Dr. Schmisseur or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Schmisseur from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Schmisseur's practice activities over the preceding five (5)
years. Prior to the Closing, the New PC shall have obtained and shall continue
to maintain, at its cost, Occurrence Medical Malpractice Liability Insurance for
Dr. Schmisseur and the New PC. The Orthodontic Entity possesses adequate
insurance coverage for its Property.
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EXHIBIT X
---------
Exceptions to Representations and
Warranties of Dr. Schmisseur and
Orthodontic Entity to OMEGA and Acquisition
Exceptions to Section 8A of Schedule 1: All business assets including inventory,
equipment, accounts and general intangibles have been pledged to Central
Illinois Bank to secure two (2) separate loans made by Central Illinois Bank to
the Corporation. The first such loan was dated December 31, 1993, was in the
original principal amount of $200,000.00 and has a current principal balance of
$122,254.98. The second such loan was dated December 11, 1996, was in the
original principal amount of $15,000.00 and has a current principal balance of
$5,000.
Exceptions to Paragraph 10B(i) of Schedule 1: Effective December 5, 1996, the
Corporation entered into a Termination Agreement with Amardeep S. Khara, who had
been employed by the Corporation as an Orthodontist since June 23, 1995.
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Schedule 2
----------
Representations and Warranties of
OMEGA and Acquisition to Dr. Schmisseur and Orthodontic Entity
Each of OMEGA and Acquisition hereby represents and warrants to Orthodontic
Entity and Dr. Schmisseur as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 2.3
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered
into as of the 31st day of March 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA " or "Surviving Entity"); Theodore G. Saydyk, Jr.,
D.D.S. ("Dr. Saydyk"), who is duly licensed to practice orthodontics in the
state of Colorado (the "State"); and Theodore G. Saydyk, Jr., D.D.S., P.C., a
Colorado professional corporation (the "Orthodontic Entity").
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 1317 North Academy Boulevard, Suite 203, Colorado Springs,
Colorado 80909 (the "Orthodontic Offices") and furnishes orthodontic care to the
general public through the services of Dr. Saydyk affiliated with the
Orthodontic Entity.
C. Dr. Saydyk presently holds 100% of the issued and outstanding capital
stock of the Orthodontic Entity (the issued and outstanding capital stock is
hereafter referred to herein as the "Interests").
D. Dr. Saydyk owns all of the Interests, and desires to convert the status
of the Orthodontic Entity from a professional entity to a general purpose entity
and to form a new professional corporation or entity to continue his orthodontic
practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed
the Orthodontic Entity's unaudited financial and operations statement provided
by Dr. Saydyk (the "Financial Statement"), a copy of which is attached hereto as
Exhibit A . Based on its review of the Orthodontic Entity and the Financial
Statement, OMEGA has issued the report (the "Report"), a copy of which has been
furnished to the Orthodontic Entity. The Orthodontic Entity and Dr. Saydyk have
reviewed the Report and OMEGA's literature, and agree with the Report and the
concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Saydyk have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into (the "Merger") as provided in
Section 2.1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of
<PAGE>
which are hereby acknowledged to the full satisfaction of the parties hereto,
the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Saydyk shall
cause the Orthodontic Entity's charter ("Charter") to be amended to convert the
Orthodontic Entity into a general purpose entity under the laws of the State.
1.2 Dr. Saydyk shall form a new professional entity (the "New PC") under
the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 INTENTIONALLY OMITTED.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the terms
and conditions hereinafter set forth, the parties hereto agree to cause the
Merger to be consummated by filing with the Delaware Secretary of State and the
State Secretary of State (if required) a Certificate of Merger (the "Certificate
of Merger") in the form required by applicable law, duly executed and
acknowledged by the Surviving Entity, and taking all such further actions as may
be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and OMEGA will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) Two Hundred Twenty Six Thousand Seven Hundred
Sixteen Dollars ($226,716) in cash payable to Dr. Saydyk (the "Cash
Component"); and
(ii) One Hundred Six Thousand Five Hundred Fifty Seven
Dollars ($106,557.00) to be represented by a promissory note (the
"Purchase Note") payable to Dr. Saydyk (the "Note Component") in
the form attached hereto as Exhibit B; and
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(iii) Three Hundred Forty Six Thousand Eight Hundred
Seventy Six Dollars ($346,876.00) to be represented by issuance to
Dr. Saydyk of shares of OMEGA common stock ("OMEGA Stock") based on
a value per share equal to 100% of the IPO Price (as defined below
in Section 2.3) (the "Stock Component"), which shall thereupon be
issued to Dr. Saydyk, fully paid and nonassessable.
(c) INTENTIONALLY OMITTED.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in
the following order of priority; first to the Cash Component, second to the Note
Component, and the balance, if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions contemplated
hereby (herein called the "Closing") shall be held immediately before the
Effective Time at the offices of Robinson & Cole, One Boston Place, Boston,
Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") ("IPO"), or at such other place, date or time as may be fixed
by mutual agreement of the parties; provided, however, that in no event shall
the Closing date be extended beyond June 30, 1997. On or before the IPO Closing,
OMEGA will notify the Orthodontic Entity of the projected IPO Closing Date
determined by OMEGA, in its sole discretion. As used herein "IPO Price" shall
mean the initial offering price to the public of OMEGA Stock as reflected on the
cover page of its Prospectus under the Securities Act for the IPO.
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
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2.5 Delivery of Records, Contracts, Interests. At the Closing Dr. Saydyk
shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure OMEGA of the full benefit of
the same.
(b) Evidence of malpractice insurance coverage for the current and five (5)
prior years, and if applicable, either evidence of so-called "tail" insurance
for such period or evidence of coverage under the New PC's policy for acts
occurring during such period, but as yet unclaimed, in either case, naming the
Orthodontic Entity (and any successor by merger) as a co-insured or otherwise
assigning to the Orthodontic Entity and its successor by merger the full
benefits thereof
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Saydyk and the Orthodontic Entity
in the attached Schedule 1 are hereby incorporated as if fully set forth herein.
The Representations and Warranties of OMEGA in the attached Schedule 2 are
hereby incorporated as if fully set forth herein. Capitalized words and
expressions used in this Agreement and which are defined in said Schedules 1 and
2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. SAYDYK
AND THE ORTHODONTIC ENTITY
Dr. Saydyk and the Orthodontic Entity hereby covenant and agree with OMEGA
as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
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(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit D) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Saydyk or
the Orthodontic Entity to suffer the revocation, suspension or limitation of Dr.
Saydyk's or the Orthodontic Entity's license.
(h) permit OMEGA and its authorized representatives to have full access to
all its properties, assets, records, tax returns, company records, contracts and
documents and furnish to OMEGA or its authorized representatives such financial
and other Information with respect to its business or properties as OMEGA may
from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Saydyk and the Orthodontic Entity of
the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and Acquisition and
shall use their best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA.
OMEGA each hereby covenants and agrees with Dr. Saydyk and the Orthodontic
Entity as follows:
5.1 Authorization from Others. Prior to the Closing, OMEGA will have
obtained all
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authorizations, consents and permits of others required to permit the
consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. OMEGA shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
5.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to Dr. Saydyk and the
Orthodontic Entity and shall use their best efforts to prevent or promptly
remedy the same.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
The obligations of OMEGA to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article 6 will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of the Orthodontic Entity and Dr. Saydyk contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr.
Saydyk and the Orthodontic Entity shall have performed all of his or its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 New PC. Dr. Saydyk shall have formed the New PC under the laws of the
State in order to commence the practice of orthodontics through the New PC. Dr.
Saydyk shall have furnished (i) a certificate of the State Secretary of State as
to the legal existence and professional corporation good standing of New PC; and
(ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Saydyk shall have executed and delivered, or
shall have caused the New PC to execute and deliver, to OMEGA or a wholly owned
subsidiary of and designated by OMEGA, a Management Services Agreement and a
Stock Put/Call Option and Successor Designation Agreement, each having
substantially the terms and conditions of the forms hereof collectively attached
hereto as Exhibit E .
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for
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OMEGA is likely to result in the restraint or prohibition of the consummation of
any material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at OMEGA expense, notify all
patients and obligors of accounts receivable, and third party payors and others
designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the form collectively attached
hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA. During the period from the date of the Financial Statement
to the Closing, there shall not have been any material adverse change in the
financial condition, results of operations, business or prospects of the
Orthodontic Entity, nor any material loss or damage to its assets, whether or
not insured, which materially affects the ability of Orthodontic Entity to
conduct its business. The Orthodontic Entity shall have delivered to OMEGA a
certificate, dated the date of Closing, to the foregoing effect, and further to
the effect that there are no Accounts Payable or other liabilities as of the
date of Closing that are not reflected on the Financial Statement other than
those which have been disclosed in writing to and accepted in writing by OMEGA
and which incurred since the date of the Financial Statement in the ordinary
course of business.
6.8 Due Diligence.OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Saydyk and the Orthodontic Entity as not reflecting any data or information
which individually or in the aggregate, if previously disclosed, would have
indicated that there was a material adverse change in the business of the
Orthodontic Entity or in the condition or prospects (financial or otherwise) of
the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA,
regarding Dr. Saydyk and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. SAYDYK
The obligations of the Orthodontic Entity and Dr. Saydyk to consummate this
Agreement and the transactions contemplated hereby are subject to the condition
that on or before the Closing the actions required by this Article 7 will have
been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations and
warranties of OMEGA contained in Schedule 2 shall be true and correct as though
made on and as of the Closing and OMEGA shall have performed all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
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7.2 INTENTIONALLY OMITTED.
7.3 Other Agreements. OMEGA or a wholly owned subsidiary of and designated
by OMEGA shall have executed and delivered to Dr. Saydyk and New PC a Management
Services Agreement and a Stock Put/Call Option and Successor Designation
Agreement, each having substantially the terms and conditions of the forms
hereof collectively attached hereto as Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr. Saydyk is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after the
Closing, Dr. Saydyk agrees to cause the New PC to implement the suggestions in
the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA shall permit Dr. Saydyk, his accountants and
attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Saydyk as may be required after the Closing
and for other proper purposes approved by OMEGA.
8.3 License. Dr. Saydyk shall maintain all licenses necessary to practice
orthodontics in the State. Dr. Saydyk shall not commit or fail to commit any act
which would cause Dr. Saydyk or the New PC to suffer the revocation, suspension
or limitation of Dr. Saydyk's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Saydyk. Subject to the limitations set forth in
Section 9.3, Dr. Saydyk agrees to defend, indemnify and hold OMEGA harmless from
and against any damages, liabilities, losses and expenses (including reasonable
counsel fees) of any kind or nature whatsoever which may be sustained or
suffered by OMEGA based upon a breach of any representation, warranty or
covenant made by the Orthodontic Entity or Dr. Saydyk in this Agreement or in
any exhibit, certificate, schedule or financial statement delivered hereunder,
or by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or
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thing covered by such representations, warranties or covenants. OMEGA may at
their option recover such indemnification claims by OMEGA by set off against
amounts of principal and interest due under the Purchase Note, but shall not be
required to recover said claims in such manner and may proceed against Dr.
Saydyk and his transferee in liquidation at any time or times for recovery of
indemnification claims.
9.2 Indemnification By OMEGA. Subject to the limitations set forth in
Section 9.3, OMEGA agrees to defend, indemnify and hold Dr. Saydyk harmless from
and against any damages, liabilities, losses and expenses (including reasonable
counsel fees) of any kind or nature whatsoever which may be sustained or
suffered by Dr. Saydyk based upon a breach of any representation, warranty or
covenant made by OMEGA in this Agreement or in any exhibit, certificate,
schedule or financial statement delivered hereunder, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
covered by such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. (a) Indemnification
claims by OMEGA may be paid or otherwise satisfied as an offset against the
Purchase Note as set forth under Section 9.1, and, in the alternative or after
any such offset, indemnification claims by OMEGA shall be paid or otherwise
satisfied by Dr. Saydyk, or Dr. Saydyk's transferees in liquidation, within 30
days after notice thereof is given by OMEGA. In the event Dr. Saydyk indicates
in a writing delivered to OMEGA that he disputes the nature or amount of the
claim, in which event the dispute upon the election of any party hereto after
said 30-day period shall be settled in accordance with Section 9.5(b).
(b) If a dispute arises under this Agreement that cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit F hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
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The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(c) Notwithstanding anything in this Section 9.5 to the contrary, nothing
shall preclude any party from seeking a preliminary injunction or other
provisional relief, either prior to or during the proceeding provided for in
this section, if in its judgment such action is necessary to avoid irreparable
damage or to preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA if the conditions stated in Article VI have not been satisfied at or prior
to the Closing, or (iv) by Dr. Saydyk if the conditions stated in Article VII
have not been satisfied at or prior to the Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Saydyk upon written
notice to the other party, and if so terminated, all obligations of the parties
hereunder shall terminate without any further liability of either party to the
other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
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If to Dr. Saydyk and the Orthodontic Entity, to:
Theodore G. Saydyk, Jr., D.D.S.
1317 North Academy Boulevard, Suite 203
Colorado Springs, Colorado 80909
If to the OMEGA to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such
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information and agree to keep it confidential. Each party shall be responsible
for any breach of this provision by its Representatives. In the event that the
Closing does not occur, each party will promptly return to the other all copies
of such other party's Confidential Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a
contract made under the laws of the State of Delaware and, together with the
rights and obligations of the parties hereunder, shall be construed under and
governed by the laws of such state. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer or
payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Saydyk.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Saydyk, the Orthodontic Entity and OMEGA each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ Theodore G. Saydyk, Jr., D.D.S.
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Theodore G. Saydyk, Jr., D.D.S.
Theodore G. Saydyk, Jr. D.D.S., P.C.
By: /s/ Theodore G. Saydyk, Jr. D.D.S.
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Theodore G. Saydyk, Jr. D.D.S.
Its _______________________________
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
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Exhibit A
Financial Statements
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Exhibit B
Purchase Note
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Exhibit C
Notices
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Exhibit D
Orthodontic Entity's Charter and
By-Laws
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Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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Exhibit F
Alternative Dispute Resolution
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
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(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party
to this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action
or proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
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10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall submit
the matter to binding arbitration in Boston, Massachusetts before a qualified
sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. If the party initially
raising the dispute to be resolved is New PC or Dr. Saydyk, the arbitration
shall be held in Boston, Massachusetts, and if the party initially raising the
dispute to be resolved is the MSO or OMEGA, the arbitration shall be held in
Denver, Colorado. The sole arbitrator shall be agreed upon by the parties within
twenty (20) days after either party elects to submit any issue to arbitration
or, failing that, shall be selected by CPR. A qualified arbitrator is one who is
familiar with the principal subject matter of the issues to be arbitrated such
as by way of example, healthcare services industry matters, management
consulting services generally or business law/corporate matters generally.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances.
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Schedule 1
Representations and Warranties of
Dr. Saydyk and Orthodontic Entity to OMEGA
Each of the Orthodontic Entity and Dr. Saydyk hereby represents and
warrants to OMEGA as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Saydyk, attached
hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Saydyk, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Saydyk,
enforceable against the Orthodontic Entity and Dr. Saydyk in accordance with its
terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Saydyk or the Orthodontic
Entity which (with or without the passage of time or the giving of notice)
affords to any person the right to accelerate any material indebtedness or
terminate any right; (c) a default of or breach of (with or without the passage
of time or the giving of notice) any other contract to which Dr. Saydyk or the
Orthodontic Entity is a party or by which their assets are bound; or (d) any
violation of any law, regulation, administrative order or judicial order
applicable to Dr. Saydyk or the Orthodontic Entity, or their business or assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Saydyk or the
Orthodontic Entity is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (iii) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which the Orthodontic Entity or Dr.
Saydyk is a party or by which their assets are bound; or (iv)
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result in a violation of any law, regulation, administrative order or judicial
order applicable to the Orthodontic Entity, Dr. Saydyk, their business or
assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Saydyk have all necessary licenses to
practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Saydyk is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Saydyk may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Saydyk's or the Orthodontic Entity's
license to practice orthodontics and neither the Orthodontic Entity nor Dr.
Saydyk is subject to any investigation, whether threatened, current or pending
by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Saydyk, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Saydyk to issue or sell the Interests and there are no pre-emptive
rights with respect to any Interests. Dr. Saydyk is the beneficial and record
owner of the Interests. Dr. Saydyk has good title to the Interests, free and
clear of any liens, encumbrances or restrictions of any kind. The Interests are
not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good repair, has been well maintained, substantially
conforms with all applicable ordinances, regulations and zoning or other laws.
The Equipment is in good working order.
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(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change
by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse
with respect to the Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the Interests
or the Property, or the property subject to any lease, or which remains in
existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this
Schedule, there is no action, suit, claim, proceeding or investigation pending
or, to the knowledge of the Orthodontic Entity or Dr. Saydyk, threatened against
the Orthodontic Entity or Dr. Saydyk, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
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board, bureau, agency or instrumentality or governmental inquiry pending or, to
the knowledge of the Orthodontic Entity or Dr. Saydyk, threatened against or
involving Dr. Saydyk or the Orthodontic Entity, and there is no basis for any of
the foregoing, and there are no outstanding court orders, court decrees, or
court stipulations to which the Orthodontic Entity or Dr. Saydyk is a party
which question this Agreement or affect the transactions contemplated hereby, or
which will result in any materially adverse change in the business, properties,
operations, prospects, assets or in the condition, financial or otherwise, of
Dr. Saydyk or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Saydyk from any professional
malpractice liability that might arise because of the Orthodontic Entity's or
Dr. Saydyk's practice activities over the preceding five (5) years. Prior to the
Closing, the New PC shall have obtained and shall continue to maintain, at its
cost, Occurrence Medical Malpractice Liability Insurance for Dr. Saydyk and the
New PC. The Orthodontic Entity possesses adequate insurance coverage for its
Property.
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EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Saydyk and
Orthodontic Entity to OMEGA and Acquisition
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Schedule 2
Representations and Warranties of
OMEGA to Dr. Saydyk and Orthodontic Entity
OMEGA hereby represents and warrants to Orthodontic Entity and Dr. Saydyk
as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 2.4
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered into
as of the ___ day of ___________ 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA" or "Surviving Entity"); Scott E. Feldman, D.D.S.
("Dr. Feldman"), who is duly licensed to practice orthodontics in the state of
California (the "State"); and Scott E. Feldman, D.D.S., M.S., a California
professional corporation (the "Orthodontic Entity").
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 6325 Topanga Canyon Boulevard, No. 424, Woodland Hills,
California 91367 (the "Orthodontic Offices") and furnishes orthodontic care to
the general public through the services of Dr. Feldman affiliated with the
Orthodontic Entity.
C. Dr. Feldman presently holds 100% of the issued and outstanding capital
stock of the Orthodontic Entity (the issued and outstanding capital stock is
hereafter referred to herein as the "Interests").
D. Dr. Feldman owns all of the Interests, and desires to convert the status
of the Orthodontic Entity from a professional entity to a general purpose entity
and to form a new professional corporation or entity to continue his orthodontic
practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed
the Orthodontic Entity's unaudited financial and operations statement provided
by Dr. Feldman (the "Financial Statement"), a copy of which is attached hereto
as Exhibit A . Based on its review of the Orthodontic Entity and the Financial
Statement, OMEGA has issued the report (the "Report"), a copy of which has been
furnished to the Orthodontic Entity. The Orthodontic Entity and Dr. Feldman have
reviewed the Report and OMEGA's literature, and agree with the Report and the
concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Feldman have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into (the "Merger") as provided in
Section 2.1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto
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agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Feldman shall
cause the Orthodontic Entity's charter ("Charter") to be amended to convert the
Orthodontic Entity into a general purpose entity under the laws of the State.
1.2 Dr. Feldman shall form a new professional entity (the "New PC") under
the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 INTENTIONALLY OMITTED.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the terms
and conditions hereinafter set forth, the parties hereto agree to cause the
Merger to be consummated by filing with the Delaware Secretary of State and the
State Secretary of State (if required) a Certificate of Merger (the "Certificate
of Merger") in the form required by applicable law, duly executed and
acknowledged by the Surviving Entity, and taking all such further actions as may
be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and OMEGA will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) One Hundred Seventy Five Thousand Nine Hundred Fifteen Dollars
($175,915.00) in cash (the "Cash Component");
(ii) Eighty-Two Thousand Six Hundred Eighty Dollars ($82,680.00) to be
represented by a promissory note (the "Purchase Note") payable to Dr.
Feldman (the "Note Component") in the form attached hereto as Exhibit B;
and
(iii) Two Hundred Sixty-Nine Thousand One Hundred Fifty Dollars
($269,150.00) to be represented by issuance to Dr. Feldman of shares of
OMEGA
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common stock ("OMEGA Stock") based on a value per share equal to 100% of
the IPO Price (as defined below in Section 2.3) (the "Stock Component"),
which shall thereupon be issued to Dr. Feldman, fully paid and
nonassessable.
(c) INTENTIONALLY OMITTED.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, second, to the Note
Component, and the balance, if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions contemplated
hereby (herein called the "Closing") shall be held immediately before the
Effective Time at the offices of Robinson & Cole, One Boston Place, Boston,
Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") ("IPO"), or at such other place, date or time as may be fixed
by mutual agreement of the parties; provided, however, that in no event shall
the Closing date be extended beyond June 30, 1997. On or before the IPO Closing,
OMEGA will notify the Orthodontic Entity of the projected IPO Closing Date
determined by OMEGA, in its sole discretion. As used herein "IPO Price" shall
mean the initial offering price to the public of OMEGA Stock as reflected on the
cover page of its Prospectus under the Securities Act for the IPO.
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
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2.5 Delivery of Records, Contracts, Interests. At the Closing Dr. Feldman
shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure OMEGA of the full benefit of
the same.
(b) Evidence of malpractice insurance coverage for the current and five (5)
prior years, and if applicable, evidence of so-called "tail" insurance for such
period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Feldman and the Orthodontic
Entity in the attached Schedule 1 are hereby incorporated as if fully set forth
herein. The Representations and Warranties of OMEGA in the attached Schedule 2
are hereby incorporated as if fully set forth herein. Capitalized words and
expressions used in this Agreement and which are defined in said Schedules 1 and
2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. FELDMAN
AND THE ORTHODONTIC ENTITY
Dr. Feldman and the Orthodontic Entity hereby covenant and agree with OMEGA
as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
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(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit D) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Feldman or
the Orthodontic Entity to suffer the revocation, suspension or limitation of Dr.
Feldman's or the Orthodontic Entity's license.
(h) permit OMEGA and its authorized representatives to have full access to
all its properties, assets, records, tax returns, company records, contracts and
documents and furnish to OMEGA or its authorized representatives such financial
and other Information with respect to its business or properties as OMEGA may
from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Feldman and the Orthodontic Entity of
the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and shall use their
best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA.
OMEGA each hereby covenants and agrees with Dr. Feldman and the Orthodontic
Entity as follows:
5.1 Authorization from Others. Prior to the Closing, OMEGA will have
obtained all
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authorizations, consents and permits of others required to permit the
consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. OMEGA shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
The obligations of OMEGA to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article 6 will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of the Orthodontic Entity and Dr. Feldman contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr.
Feldman and the Orthodontic Entity shall have performed all of his or its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 New PC. Dr. Feldman shall have formed the New PC under the laws of the
State in order to commence the practice of orthodontics through the New PC. Dr.
Feldman shall have furnished (i) a certificate of the State Secretary of State
as to the legal existence and professional corporation good standing of New PC;
and (ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Feldman shall have executed and delivered, or
shall have caused the New PC to execute and deliver, to OMEGA or a wholly owned
subsidiary of and designated by OMEGA a Management Services Agreement and a
Stock Put/Call Option and Successor Designation Agreement, each having
substantially the terms and conditions of the forms hereof collectively attached
hereto as Exhibit E .
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at OMEGA's expense, notify all
patients and obligors of accounts receivable, and third party payors and others
designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the
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form collectively attached hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA. During the period from the date of the Financial Statement
to the Closing, there shall not have been any material adverse change in the
financial condition, results of operations, business or prospects of the
Orthodontic Entity, nor any material loss or damage to its assets, whether or
not insured, which materially affects the ability of Orthodontic Entity to
conduct its business. The Orthodontic Entity shall have delivered to OMEGA a
certificate, dated the date of Closing, to the foregoing effect, and further to
the effect that there are no Accounts Payable or other liabilities as of the
date of Closing that are not reflected on the Financial Statement other than
those which have been disclosed in writing to and accepted in writing by OMEGA
and which incurred since the date of the Financial Statement in the ordinary
course of business.
6.8 Due Diligence. OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Feldman and the Orthodontic Entity as not reflecting any data or information
which individually or in the aggregate, if previously disclosed, would have
indicated that there was a material adverse change in the business of the
Orthodontic Entity or in the condition or prospects (financial or otherwise) of
the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA,
regarding Dr. Feldman and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. FELDMAN
The obligations of the Orthodontic Entity and Dr. Feldman to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations and
warranties of OMEGA contained in Schedule 2 shall be true and correct as though
made on and as of the Closing and OMEGA shall have performed all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
7.2 INTENTIONALLY OMITTED.
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7.3 Other Agreements. OMEGA or a wholly owned subsidiary of and designated
by OMEGA shall have executed and delivered to Dr. Feldman and New PC a
Management Services Agreement and a Stock Put/Call Option and Successor
Designation Agreement, each having substantially the terms and conditions of the
forms hereof collectively attached hereto as Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr. Feldman
is likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after the
Closing, Dr. Feldman agrees to cause the New PC to implement the suggestions in
the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA shall permit Dr. Feldman, his accountants and
attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Feldman as may be required after the Closing
and for other proper purposes approved by OMEGA.
8.3 License. Dr. Feldman shall maintain all licenses necessary to practice
orthodontics in the State. Dr. Feldman shall not commit or fail to commit any
act which would cause Dr. Feldman or the New PC to suffer the revocation,
suspension or limitation of Dr. Feldman's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Feldman. Subject to the limitations set forth in
Section 9.3, Dr. Feldman agrees to defend, indemnify and hold OMEGA harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by OMEGA based upon a breach of any representation, warranty or
covenant made by the Orthodontic Entity or Dr. Feldman in this Agreement or in
any exhibit, certificate, schedule or financial statement delivered hereunder,
or by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing covered by such representations, warranties or
covenants. OMEGA may at their option recover such indemnification claims by
OMEGA by set-off against amounts of principal and interest due under the
Purchase Note, but shall not be required to recover said claims in such manner
and may proceed against Dr. Feldman and his transferees in liquidation at any
time or times for recovery of indemnification claims.
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9.2 Indemnification By OMEGA. Subject to the limitations set forth in
Section 9.3, OMEGA agrees to defend, indemnify and hold Dr. Feldman harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by Dr. Feldman based upon a breach of any representation, warranty
or covenant made by OMEGA in this Agreement or in any exhibit, certificate,
schedule or financial statement delivered hereunder, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
covered by such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. (a) Indemnification
claims by OMEGA may be paid or otherwise satisfied as an offset against the
Purchase Note as set forth under Section 9.1, and, in the alternative or after
any such offset, the indemnification claims (or any balance thereof) shall be
paid or otherwise satisfied Dr. Feldman, or Dr. Feldman's transferees in
liquidation, within 30 days after notice thereof is given by OMEGA. In the event
Dr. Feldman indicates in a writing delivered to OMEGA that he disputes the
nature or amount of the claim, in which event the dispute upon the election of
any party hereto after said 30-day period shall be settled in accordance with
Section 9.5(b).
(b) If a dispute arises under this Agreement that cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(c) Notwithstanding anything in this Section 9.5 to the contrary,nothing
shall preclude any party from seeking a preliminary injunction or other
provisional relief, either prior to or during the proceeding provided for in
this section, if in its judgment such action is necessary to avoid irreparable
damage or to
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preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA if the conditions stated in Article VI have not been satisfied at or prior
to the Closing, or (iv) by Dr. Feldman if the conditions stated in Article VII
have not been satisfied at or prior to the Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Feldman upon written
notice to the other party, and if so terminated, all obligations of the parties
hereunder shall terminate without any further liability of either party to the
other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
If to Dr. Feldman and the Orthodontic Entity, to:
Scott E. Feldman, D.D.S.
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, California 91367
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If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party will
promptly return to the other all copies of such other party's Confidential
Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a contract
made
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under the laws of the State of Delaware and, together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such state. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer or
payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Feldman.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Feldman, the Orthodontic Entity and OMEGA each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ Scott E. Feldman D.D.S.
--------------------------------------------
Printed Name: Scott E. Feldman, D.D.S.
Scott E. Feldman, D.D.S., M.S.
By: /s/ Scott E. Feldman
-----------------------------------------
Printed Name: Scott E. Feldman, D.D.S.
Its
--------------------------------------
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
----------------------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
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Exhibit A
Financial Statement
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Exhibit B
Purchase Note
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Exhibit C
Notices
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Exhibit D
Orthodontic Entity's Charter and
By-Laws
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Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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EXHIBIT F
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals
or the American Arbitration Association ("AAA"), with the assistance of CPR/AAA,
unless the parties agree otherwise in finding a mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR/AAA.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR/AAA.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
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(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or
proceeding relating to the subject matter of the mediation
(including any investigation, action or proceeding which involves
persons not party to this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation,
action or proceeding, and all parties will oppose any effort to
have the mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal
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issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes or comparable AAA rules. The arbitration shall be held in
Woodland Hills, California. The sole arbitrator shall be agreed upon by the
parties within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR/AAA. A qualified
arbitrator is one who is familiar with the principal subject matter of the
issues to be arbitrated such as by way of example, healthcare services industry
matters, management consulting services generally or business law/corporate
matters generally. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator shall not have the
authority to award multiple, punitive or consequential damages under any
circumstances.
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Schedule 1
Representations and Warranties of
Dr. Feldman and Orthodontic Entity to OMEGA
Each of the Orthodontic Entity and Dr. Feldman hereby represents and
warrants to OMEGA as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Feldman, attached
hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Feldman, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Feldman,
enforceable against the Orthodontic Entity and Dr. Feldman in accordance with
its terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Feldman or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr. Feldman
or the Orthodontic Entity is a party or by which their assets are bound; or (d)
any violation of any law, regulation, administrative order or judicial order
applicable to Dr. Feldman or the Orthodontic Entity, or their business or
assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Feldman or the
Orthodontic Entity is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (iii) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which the Orthodontic Entity or Dr.
Feldman is a party or by which their assets are bound; or (iv)
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result in a violation of any law, regulation, administrative order or judicial
order applicable to the Orthodontic Entity, Dr. Feldman, their business or
assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Feldman have all necessary licenses to
practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Feldman is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Feldman may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Feldman's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Feldman is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Feldman, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Feldman to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Feldman is the beneficial
and record owner of the Interests. Dr. Feldman has good title to the Interests,
free and clear of any liens, encumbrances or restrictions of any kind. The
Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good repair, has been well maintained, substantially
conforms with all applicable ordinances, regulations and zoning or other laws.
The Equipment is in good working order.
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(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change
by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse
with respect to the Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the Interests
or the Property, or the property subject to any lease, or which remains in
existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this Schedule,
there is no action, suit, claim, proceeding or investigation pending or, to the
knowledge of the Orthodontic Entity or Dr. Feldman, threatened against the
Orthodontic Entity or Dr. Feldman, at law or in
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equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or governmental
inquiry pending or, to the knowledge of the Orthodontic Entity or Dr. Feldman,
threatened against or involving Dr. Feldman or the Orthodontic Entity, and there
is no basis for any of the foregoing, and there are no outstanding court orders,
court decrees, or court stipulations to which the Orthodontic Entity or Dr.
Feldman is a party which question this Agreement or affect the transactions
contemplated hereby, or which will result in any materially adverse change in
the business, properties, operations, prospects, assets or in the condition,
financial or otherwise, of Dr. Feldman or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Feldman from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Feldman's practice activities over the preceding five (5) years.
Prior to the Closing, the New PC shall have obtained and shall continue to
maintain, at its cost, Occurrence Medical Malpractice Liability Insurance for
Dr. Feldman and the New PC. The Orthodontic Entity possesses adequate insurance
coverage for its Property.
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<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Feldman and
Orthodontic Entity to OMEGA and Acquisition
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<PAGE>
Schedule 2
Representations and Warranties of
OMEGA to Dr. Feldman and Orthodontic Entity
OMEGA hereby represents and warrants to Orthodontic Entity and Dr. Feldman
as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 2.5
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered
into as of the 29th day of March 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA"); Jeff S. Zapalac, D.D.S. ("Dr. Zapalac"), who is
duly licensed to practice orthodontics in the state of Texas (the "State"); Jeff
S. Zapalac, D.D.S., M.S., Inc., a Texas professional corporation (the
"Orthodontic Entity"); and Omega Orthodontics of Austin, Inc., a Delaware
corporation to be formed and to become a wholly owned subsidiary of OMEGA
("Acquisition" and sometimes referred to herein as the "Surviving Entity") (and
which shall have joined herein by subsequently executing this Agreement).
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 8430 Spicewood Springs Road, Austin, Texas 78759 (the
"Orthodontic Offices") and furnishes orthodontic care to the general public
through the services of Dr. Zapalac affiliated with the Orthodontic Entity.
C. Dr. Zapalac presently holds 100% of the issued and outstanding
capital stock of the Orthodontic Entity (the issued and outstanding capital
stock is hereafter referred to herein as the "Interests").
D. Dr. Zapalac owns all of the Interests, and desires to convert the
status of the Orthodontic Entity from a professional entity to a general
purpose entity and to form a new professional corporation or entity to
continue his orthodontic practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has
reviewed the Orthodontic Entity's unaudited financial and operations statement
provided by Dr. Zapalac (the "Financial Statement"), a copy of which is attached
hereto as Exhibit A . Based on its review of the Orthodontic Entity and the
Financial Statement, OMEGA has issued the report (the "Report"), a copy of which
has been furnished to the Orthodontic Entity. The Orthodontic Entity and Dr.
Zapalac have reviewed the Report and OMEGA's literature, and agree with the
Report and the concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Zapalac have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity
<PAGE>
with and into Acquisition (the "Merger") as provided in Section 2.1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Zapalac shall
cause the Orthodontic Entity's charter ("Charter") to be amended to convert the
Orthodontic Entity into a general purpose entity under the laws of the State.
1.2 Dr. Zapalac shall form a new professional entity (the "New PC") under
the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 OMEGA shall form Acquisition and shall cause Acquisition to join in
this Agreement by subsequently executing this Agreement where indicated below.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the
terms and conditions hereinafter set forth, the parties hereto agree to cause
the Merger to be consummated by filing with the Delaware Secretary of State and
the State Secretary of State (if required) a Certificate of Merger (the
"Certificate of Merger") in the form required by applicable law, duly executed
and acknowledged by the Surviving Entity, and taking all such further actions as
may be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and Acquisition will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) Five Hundred Thousand Dollars ($500,000.00) in cash (the "Cash
Component"); and
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(iii) Five Hundred Thousand Dollars ($500,000.00) to be represented
by issuance to Dr. Zapalac of an option to purchase shares of OMEGA common
stock ("OMEGA Stock") at any time within five years of the IPO Closing (as
defined below in Section 2.3), based on a value per share equal to 100% of
the IPO Price (as defined below in Section 2.3) (the "Option Component"),
if the option is exercised, the OMEGA Stock shall thereupon be issued to
Dr. Zapalac, fully paid and nonassessable.
(c) At the Effective Time, each share of stock of Acquisition outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and without any action on the part of any holder thereof, continue and
shall be held by OMEGA.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, and the balance, if
any, to the Option Component.
2.3 Time and Place of Closing. The closing of the transactions
contemplated hereby (herein called the "Closing") shall be held immediately
before the Effective Time at the offices of Robinson & Cole, One Boston Place,
Boston, Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") ("IPO"), or at such other place, date or time as may be fixed
by mutual agreement of the parties; provided, however, that in no event shall
the Closing date be extended beyond June 30, 1997. On or before the IPO Closing,
OMEGA will notify the Orthodontic Entity of the projected IPO Closing Date
determined by OMEGA, in its sole discretion. As used herein "IPO Price" shall
mean the initial offering price to the public of OMEGA Stock as reflected on the
cover page of its Prospectus under the Securities Act for the IPO.
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2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr. Zapalac
shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure Acquisition and OMEGA of the
full benefit of the same.
(b) Evidence of malpractice insurance coverage for the current and five
(5) prior years, and if applicable, evidence of so-called "tail" insurance for
such period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Zapalac and the Orthodontic
Entity in the attached Schedule 1 are hereby incorporated as if fully set forth
herein. The Representations and Warranties of OMEGA and Acquisition in the
attached Schedule 2 are hereby incorporated as if fully set forth herein.
Capitalized words and expressions used in this Agreement and which are defined
in said Schedules 1 and 2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. ZAPALAC
AND THE ORTHODONTIC ENTITY
Dr. Zapalac and the Orthodontic Entity hereby covenant and agree with
OMEGA and Acquisition as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
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(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit C) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Zapalac or
the Orthodontic Entity to suffer the revocation, suspension or limitation of Dr.
Zapalac's or the Orthodontic Entity's license.
(h) permit OMEGA or Acquisition and its authorized representatives to have
full access to all its properties, assets, records, tax returns, company
records, contracts and documents and furnish to OMEGA or its authorized
representatives such financial and other Information with respect to its
business or properties as OMEGA may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Zapalac and the Orthodontic Entity of
the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and Acquisition and
shall use their best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA AND ACQUISITION.
OMEGA and Acquisition each hereby covenants and agrees with Dr. Zapalac
and the
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Orthodontic Entity as follows:
5.1 Authorization from Others. Prior to the Closing, each will have
obtained all authorizations, consents and permits of others required to permit
the consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. Each shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA AND ACQUISITION
The obligations of OMEGA and Acquisition to consummate this Agreement and
the transactions contemplated hereby are subject to the condition that on or
before the Closing the actions required by this Article 6 will have been
accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Orthodontic Entity and Dr. Zapalac contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr.
Zapalac and the Orthodontic Entity shall have performed all of his or its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 New PC. Dr. Zapalac shall have formed the New PC under the laws of the
State in order to commence the practice of orthodontics through the New PC. Dr.
Zapalac shall have furnished (i) a certificate of the State Secretary of State
as to the legal existence and professional corporation good standing of New PC;
and (ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Zapalac shall have executed and delivered,
or shall have caused the New PC to execute and deliver, to Acquisition a
Management Services Agreement and a Stock Put/Call Option and Successor
Designation Agreement, each having substantially the terms and conditions of
the forms hereof collectively attached hereto as Exhibit D.
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA or
Acquisition is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at Acquisition's expense,
notify all patients
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and obligors of accounts receivable, and third party payors and others
designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the form collectively attached
hereto as Exhibit B.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA and Acquisition. During the period from the date of the
Financial Statement to the Closing, there shall not have been any material
adverse change in the financial condition, results of operations, business or
prospects of the Orthodontic Entity, nor any material loss or damage to its
assets, whether or not insured, which materially affects the ability of
Orthodontic Entity to conduct its business. The Orthodontic Entity shall have
delivered to OMEGA a certificate, dated the date of Closing, to the foregoing
effect, and further to the effect that there are no Accounts Payable or other
liabilities as of the date of Closing that are not reflected on the Financial
Statement other than those which have been disclosed in writing to and accepted
in writing by OMEGA and Acquisition and which incurred since the date of the
Financial Statement in the ordinary course of business.
6.8 Due Diligence. OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Zapalac and the Orthodontic Entity as not reflecting any data or information
which individually or in the aggregate, if previously disclosed, would have
indicated that there was a material adverse change in the business of the
Orthodontic Entity or in the condition or prospects (financial or otherwise) of
the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA or
Acquisition, regarding Dr. Zapalac and the Orthodontic Entity, including
location of the Orthodontic Offices and its demographics, the leases, the
Equipment, insurance, licensing, malpractice issues, liabilities, compliance
with laws and regulations and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. ZAPALAC
The obligations of the Orthodontic Entity and Dr. Zapalac to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations
and warranties of OMEGA contained in Schedule 2 shall be true and correct as
though made on and as of the Closing and each of OMEGA and Acquisition shall
have performed all of its obligations hereunder which by the terms hereof are to
be performed on or before the Closing. Each of the representations and
warranties of Acquisition contained in Schedule 2 shall be true and correct on
the day Acquisition joins in this Agreement and as though made on and as of the
Closing
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7.2 Acquisition. OMEGA shall have formed Acquisition and shall have caused
Acquisition to join in this Agreement.
7.3 Other Agreements. OMEGA and Acquisition shall have executed and
delivered to Dr. Zapalac and New PC a Management Services Agreement and a Stock
Put/Call Option and Successor Designation Agreement, each having substantially
the terms and conditions of the forms hereof collectively attached hereto as
Exhibit D.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr. Zapalac
is likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions.
On and after the Closing, Dr. Zapalac agrees to cause the New PC to implement
the suggestions in the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA and Acquisition shall permit Dr. Zapalac, his
accountants and attorneys, reasonable access to such books and records for the
purpose of preparing such tax returns of Dr. Zapalac as may be required after
the Closing and for other proper purposes approved by OMEGA and Acquisition.
8.3 License. Dr. Zapalac shall maintain all licenses necessary to practice
orthodontics in the State. Dr. Zapalac shall not commit or fail to commit any
act which would cause Dr. Zapalac or the New PC to suffer the revocation,
suspension or limitation of Dr. Zapalac's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Zapalac. Subject to the limitations set forth
in Section 9.3, Dr. Zapalac agrees to defend, indemnify and hold each of OMEGA
and Acquisition harmless from and against any damages, liabilities, losses and
expenses (including reasonable counsel fees) of any kind or nature whatsoever
which may be sustained or suffered by OMEGA or Acquisition based upon a breach
of any representation, warranty or covenant made by the Orthodontic Entity or
Dr. Zapalac in this Agreement or in any exhibit, certificate, schedule or
financial statement delivered hereunder, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing covered by
such representations, warranties or covenants.
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9.2 Indemnification By OMEGA and Acquisition. Subject to the limitations
set forth in Section 9.3, OMEGA and Acquisition, jointly and severally, each
agrees to defend, indemnify and hold Dr. Zapalac harmless from and against any
damages, liabilities, losses and expenses (including reasonable counsel fees) of
any kind or nature whatsoever which may be sustained or suffered by Dr. Zapalac
based upon a breach of any representation, warranty or covenant made by OMEGA or
Acquisition in this Agreement or in any exhibit, certificate, schedule or
financial statement delivered hereunder, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing covered by
such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. (a) Any
indemnification claims shall be paid or otherwise satisfied by Dr. Zapalac, or
Dr. Zapalac's transferees in liquidation, within 30 days after notice thereof is
given by OMEGA or Acquisition. In the event Dr. Zapalac indicates in a writing
delivered to OMEGA and Acquisition that he disputes the nature or amount of the
claim, in which event the dispute upon the election of any party hereto after
said 30-day period shall be handled in accordance with this Section.
(b) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(c) Notwithstanding anything in this Section 9.5 to the contrary, nothing
in this Section 9.5 shall preclude any party from seeking a preliminary
injunction or other provisional relief, either prior to or during the proceeding
provided for in this section, if in its judgment such
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action is necessary to avoid irreparable damage or to preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA or Acquisition if the conditions stated in Article VI have not been
satisfied at or prior to the Closing, or (iv) by Dr. Zapalac if the conditions
stated in Article VII have not been satisfied at or prior to the Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Zapalac upon written
notice to the other party, and if so terminated, all obligations of the parties
hereunder shall terminate without any further liability of either party to the
other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
If to Dr. Zapalac and the Orthodontic Entity, to:
Jeff S. Zapalac, D.D.S.
8430 Spicewood Springs Road
Austin, Texas 78759
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If to the OMEGA or Acquisition, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party will
promptly return to the other all copies of such other party's Confidential
Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a
contract made under the laws of the State of Delaware and, together with the
rights and obligations of the
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parties hereunder, shall be construed under and governed by the laws of such
state. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer
or payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Zapalac.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Zapalac, the Orthodontic Entity, OMEGA and Acquisition each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ Jeff S. Zapalac D.D.S.
------------------------------
Printed Name: Jeff S. Zapalac, D.D.S.
Jeff S. Zapalac, D.D.S., M.S., Inc.
By: /s/ Jeff S. Zapalac D.D.S.
------------------------------
Jeff S. Zapalac, D.D.S.
Its
-----------------------
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
-----------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
JOINDER
Omega Orthodontics of Austin, Inc. hereby joins in this Agreement as if
an original signator hereto.
Omega Orthodontics of Austin, Inc.
By:
------------------------------------
Printed Name:
----------------------
Its
-------------------------------
Duly Authorized
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<PAGE>
Exhibit A
Financial Statement
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<PAGE>
Exhibit B
Notices
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<PAGE>
Exhibit C
Orthodontic Entity's Charter and
By-Laws
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<PAGE>
Exhibit D
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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<PAGE>
Exhibit E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
either the Center for Public Resources, New York, New York ("CPR") Panels of
Neutrals, the American Arbitration Association ("AAA") or the Association of
Attorney Neutrals ("AAN"), with the assistance of such organization, unless the
parties agree otherwise in finding a mutually acceptable mediator.
5. Acquisition shall bear 50% and the New PC and Dr. Zapalac shall bear
50% of the fees and costs of the mediator and any fees and costs of CPR, AAA or
AAN.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR, AAA or AAN.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or
more of its officers and an attorney. Each party will have a representative
fully authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party
to this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action
or proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as
an arbitrator,
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unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration before AAA, AAN or CPR, to a qualified sole arbitrator in accordance
with the then current CPR Rules for Non-Administered Arbitration of Business
Disputes or comparable AAA or AAN rules. The sole arbitrator shall be agreed
upon by the parties within twenty (20) days after either party elects to submit
any issue to arbitration or, failing that, shall be selected by the organization
to whom the parties selected for arbitration. A qualified arbitrator is one who
is familiar with the principal subject matter of the issues to be arbitrated
such as by way of example, healthcare services industry matters, management
consulting services generally or business law/corporate matters generally.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances. If the
party initially raising the dispute to be resolved is New PC or Dr. Zapalac, the
arbitration shall be held in Boston, Massachusetts, and if the party initially
raising the dispute to be resolved is the MSO or OMEGA, the arbitration shall be
held in Austin, Texas.
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Schedule 1
Representations and Warranties of
Dr. Zapalac and Orthodontic Entity to OMEGA and Acquisition
Each of the Orthodontic Entity and Dr. Zapalac hereby represents and
warrants to OMEGA and Acquisition as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Zapalac, attached
hereto as Exhibit C are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Zapalac, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Zapalac,
enforceable against the Orthodontic Entity and Dr. Zapalac in accordance with
its terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Zapalac or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr. Zapalac
or the Orthodontic Entity is a party or by which their assets are bound; or (d)
any violation of any law, regulation, administrative order or judicial order
applicable to Dr. Zapalac or the Orthodontic Entity, or their business or
assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Zapalac or the
Orthodontic Entity is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (iii) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which the Orthodontic Entity or Dr.
Zapalac is a party or by which their assets are bound; or (iv)
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result in a violation of any law, regulation, administrative order or judicial
order applicable to the Orthodontic Entity, Dr. Zapalac, their business or
assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Zapalac have all necessary licenses to
practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Zapalac is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Zapalac may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Zapalac's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Zapalac is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Zapalac, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Zapalac to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Zapalac is the beneficial
and record owner of the Interests. Dr. Zapalac has good title to the Interests,
free and clear of any liens, encumbrances or restrictions of any kind. The
Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good repair, has been well maintained, substantially
conforms with all applicable ordinances, regulations and zoning or other laws.
The Equipment is in good working order.
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<PAGE>
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which
change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, has been materially
adverse with respect to the Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the
Interests or the Property, or the property subject to any lease, or which
remains in existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this
Schedule, there is no action, suit, claim, proceeding or investigation pending
or, to the knowledge of the Orthodontic Entity or Dr. Zapalac, threatened
against the Orthodontic Entity or Dr. Zapalac, at law or in equity, or before or
by any Federal, state, municipal or other governmental department,
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commission, board, bureau, agency or instrumentality or governmental inquiry
pending or, to the knowledge of the Orthodontic Entity or Dr. Zapalac,
threatened against or involving Dr. Zapalac or the Orthodontic Entity, and there
is no basis for any of the foregoing, and there are no outstanding court orders,
court decrees, or court stipulations to which the Orthodontic Entity or Dr.
Zapalac is a party which question this Agreement or affect the transactions
contemplated hereby, or which will result in any materially adverse change in
the business, properties, operations, prospects, assets or in the condition,
financial or otherwise, of Dr. Zapalac or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Zapalac from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Zapalac's practice activities over the preceding five (5) years.
Prior to the Closing, the New PC shall have obtained and shall continue to
maintain, at its cost, Occurrence Medical Malpractice Liability Insurance for
Dr. Zapalac and the New PC. The Orthodontic Entity possesses adequate insurance
coverage for its Property.
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EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Zapalac and
Orthodontic Entity to OMEGA and Acquisition
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Schedule 2
Representations and Warranties of
OMEGA and Acquisition to Dr. Zapalac and Orthodontic Entity
Each of OMEGA and Acquisition hereby represents and warrants to
Orthodontic Entity and Dr. Zapalac as follows:
1. Organization. That it is a corporation duly organized, validly existing
and in good standing under the laws of Delaware with full corporate power to own
or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is conducted
by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 2.6
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered
into as of the 25th day of February, 1997, by and among Omega Orthodontics,
Inc., a Delaware corporation ("OMEGA"); David T. Grove, D.M.D., M.S. ("Dr.
Grove"), who is duly licensed to practice orthodontics in the state of Nevada
(the "State"); David T. Grove, LLC, a Nevada limited liability company (the
"Orthodontic Entity"); and Omega Orthodontics of Elko, Inc., a Delaware
corporation to be formed and to become a wholly owned subsidiary of OMEGA
("Acquisition" and sometimes referred to herein as the "Surviving Entity") (and
which shall have joined herein by subsequently executing this Agreement).
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 581 12th Street, Elko, Nevada (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Grove affiliated with the Orthodontic Entity.
C. Dr. Grove presently holds 100% of the membership interests of
the Orthodontic Entity (the issued and outstanding interests is hereafter
referred to herein as the "Interests").
D. Dr. Grove owns all of the Interests, and desires to convert the
Orthodontice Entity to a general purpose entity under the laws of the State
and to form a new professional corporation or entity to continue his
orthodontic practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has
reviewed the Orthodontic Entity's unaudited financial and operations statement
provided by Dr. Grove (the "Financial Statement"), a copy of which is attached
hereto as Exhibit A . Based on its review of the Orthodontic Entity and the
Financial Statement, OMEGA has issued the report (the "Report"), a copy of which
has been furnished to the Orthodontic Entity. The Orthodontic Entity and Dr.
Grove have reviewed the Report and OMEGA's literature, and agree with the Report
and the concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Grove have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into Acquisition (the "Merger") as
provided in Section 2.1 hereof.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Grove shall
cause the Orthodontic Entity's operating agreement and articles of organization
to be amended to convert the Orthodontic Entity into a general purpose entity
under the laws of the State.
1.2 Dr. Grove shall form a new professional entity (the "New PC") under
the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 OMEGA shall form Acquisition and shall cause Acquisition to join in
this Agreement by subsequently executing this Agreement where indicated below.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the
terms and conditions hereinafter set forth, the parties hereto agree to cause
the Merger to be consummated by filing with the Delaware Secretary of State and
the State Secretary of State (if required) a Certificate of Merger (the
"Certificate of Merger") in the form required by applicable law, duly executed
and acknowledged by the Surviving Entity, and taking all such further actions as
may be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and Acquisition will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restirctions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) Three Hundred Thirty Three Thousand, Five Hundred Sixty Seven
Dollars ($333,567) in cash (the "Cash Component");
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(ii) Three Hundred Thirty Three Thousand, Five Hundred Sixty Seven
Dollars ($333,567) to be represented by a promissory note (the "Purchase
Note") payable to Dr. Grove (the "Note Component") in the form attached
hereto as Exhibit B; and
(iii) Three Hundred Thirty Three Thousand, Five Hundred Seventy
($333,570) Dollars to be represented by issuance to Dr. Grove of shares of
OMEGA common stock ("OMEGA Stock") based on a value per share equal to
100% of the IPO Price (as defined below in Section 2.3) (the "Stock
Component"), which shall thereupon be issued to Dr. Grove, fully paid and
nonassessable.
(c) At the Effective Time, each share of stock of Acquisition outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and without any action on the part of any holder thereof, continue and
shall be held by OMEGA.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, second, to the Note
Component, and the balance, if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions
contemplated hereby (herein called the "Closing") shall be held immediately
before the Effective Time at the offices of Robinson & Cole, One Boston Place,
Boston, Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act")
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("IPO"), or at such other place, date or time as may be fixed by mutual
agreement of the parties; provided, however, that in no event shall the Closing
date be extended beyond June 30, 1997. On or before the IPO Closing, OMEGA will
notify the Orthodontic Entity of the projected IPO Closing Date determined by
OMEGA, in its sole discretion. As used herein "IPO Price" shall mean the initial
offering price to the public of OMEGA Stock as reflected on the cover page of
its Prospectus under the Securities Act for the IPO.
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr.
Grove shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, membership interest
records and other company books and records and the Orthodontic Entity's leases,
contracts, employment agreements, non-compete agreements, commitments and
rights, with such consents to the Merger as are necessary to assure Acquisition
and OMEGA of the full benefit of the same.
(b) Evidence of malpractice insurance coverage for the current and five
(5) prior years, and if applicable, evidence of so-called "tail" insurance for
such period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Grove and the Orthodontic Entity
in the attached Schedule 1 are hereby incorporated as if fully set forth herein.
The Representations and Warranties of OMEGA and Acquisition in the attached
Schedule 2 are hereby incorporated as if fully set forth herein. Capitalized
words and expressions used in this Agreement and which are defined in said
Schedules 1 and 2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. GROVE
AND THE ORTHODONTIC ENTITY
Dr. Grove and the Orthodontic Entity hereby covenant and agree with
OMEGA and Acquisition as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or
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introducing any method of management or operations except in the ordinary course
of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation to make a
change in its operating agreement (certified copies of which are attached hereto
as Exhibit D) or authorized or issued membership interests, except as
contemplated by this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of membership interests, or making any direct
or indirect redemption, purchase or other acquisition of membership interest, of
the Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Grove
or the Orthodontic Entity to suffer the revocation, suspension or limitation of
Dr. Grove's or the Orthodontic Entity's license.
(h) permit OMEGA or Acquisition and its authorized representatives to have
full access to all its properties, assets, records, tax returns, company
records, contracts and documents and furnish to OMEGA or its authorized
representatives such financial and other Information with respect to its
business or properties as OMEGA may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Grove and the Orthodontic Entity of
the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and Acquisition and
shall use their best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and
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fulfill all conditions and obligations on his or its part to be performed and
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA AND ACQUISITION.
OMEGA and Acquisition each hereby covenants and agrees with Dr. Grove and
the Orthodontic Entity as follows:
5.1 Authorization from Others. Prior to the Closing, each will have
obtained all authorizations, consents and permits of others required to permit
the consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. Each shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA AND ACQUISITION
The obligations of OMEGA and Acquisition to consummate this Agreement and
the transactions contemplated hereby are subject to the condition that on or
before the Closing the actions required by this Article 6 will have been
accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Orthodontic Entity and Dr. Grove contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr. Grove
and the Orthodontic Entity shall have performed all of his or its obligations
hereunder which by the terms hereof are to be performed on or before the
Closing.
6.2 New PC. Dr. Grove shall have formed the New PC under the laws of the
State in order to commence the practice of orthodontics through the New PC. Dr.
Grove shall have furnished (i) a certificate of the State Secretary of State as
to the legal existence and professional corporation good standing of New PC; and
(ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Grove shall have executed and delivered,
or shall have caused the New PC to execute and deliver, to Acquisition a
Management Services Agreement and a Stock Put/Call Option and Successor
Designation Agreement, each having substantially the terms and conditions of
the forms hereof collectively attached hereto as Exhibit E .
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
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6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA or
Acquisition is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at Acquisition's expense,
notify all patients and obligors of accounts receivable, and third party payors
and others designated by OMEGA of the Merger and the other transactions
contemplated hereunder pursuant to notices substantially in the form
collectively attached hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA and Acquisition. During the period from the date of the
Financial Statement to the Closing, there shall not have been any material
adverse change in the financial condition, results of operations, business or
prospects of the Orthodontic Entity, nor any material loss or damage to its
assets, whether or not insured, which materially affects the ability of
Orthodontic Entity to conduct its business. The Orthodontic Entity shall have
delivered to OMEGA a certificate, dated the date of Closing, to the foregoing
effect, and further to the effect that there are no Accounts Payable or other
liabilities as of the date of Closing that are not reflected on the Financial
Statement other than those which have been disclosed in writing to and accepted
in writing by OMEGA and Acquisition and which incurred since the date of the
Financial Statement in the ordinary course of business.
6.8 Due Diligence. OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Grove and the Orthodontic Entity as not reflecting any data or information which
individually or in the aggregate, if previously disclosed, would have indicated
that there was a material adverse change in the business of the Orthodontic
Entity or in the condition or prospects (financial or otherwise) of the assets,
properties, operations, patients, employees or equipment of the business of the
Orthodontic Entity from the information provided prior to the date hereof. As
used herein, Due Diligence shall mean, without limitation, the results of the
Audit of the Financial Statement and of all other matters (financial or
otherwise) related to, or otherwise deemed material by OMEGA or Acquisition,
regarding Dr. Grove and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. GROVE
The obligations of the Orthodontic Entity and Dr. Grove to consummate this
Agreement and the transactions contemplated hereby are subject to the condition
that on or before the
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Closing the actions required by this Article 7 will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations
and warranties of OMEGA and Acquisition contained in Schedule 2 shall be true
and correct as though made on and as of the Closing and each of OMEGA and
Acquisition shall have performed all of its obligations hereunder which by the
terms hereof are to be performed on or before the Closing.
7.2 Acquisition. OMEGA shall have formed Acquisition and shall have caused
Acquisition to join in this Agreement.
7.3 Other Agreements. OMEGA and Acquisition shall have executed and
delivered to Dr. Grove and New PC a Management Services Agreement and a Stock
Put/Call Option and Successor Designation Agreement, each having substantially
the terms and conditions of the forms hereof collectively attached hereto as
Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr. Grove is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after
the Closing, Dr. Grove agrees to cause the New PC to implement the suggestions
in the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA and Acquisition shall permit Dr. Grove, his
accountants and attorneys, reasonable access to such books and records for the
purpose of preparing such tax returns of Dr. Grove as may be required after the
Closing and for other proper purposes approved by OMEGA and Acquisition.
8.3 License. Dr. Grove shall maintain all licenses necessary to
practice orthodontics in the State. Dr. Grove shall not commit or fail to
commit any act which would cause Dr. Grove or the New PC to suffer the
revocation, suspension or limitation of Dr. Grove's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Grove. Subject to the limitations set forth in
Section 9.3, Dr. Grove agrees to defend, indemnify and hold each of OMEGA and
Acquisition harmless from
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and against any damages, liabilities, losses and expenses (including reasonable
counsel fees) of any kind or nature whatsoever which may be sustained or
suffered by OMEGA or Acquisition based upon a breach of any representation,
warranty or covenant made by the Orthodontic Entity or Dr. Grove in this
Agreement or in any exhibit, certificate, schedule or financial statement
delivered hereunder, or by reason of any claim, action or proceeding asserted or
instituted growing out o any matter or thing covered by such representations,
warranties or covenants. OMEGA and Acquisition may at their option recover such
indemnification claims by OMEGA or Acquisition by set-off against amounts of
principal and interest due under the Purchase Note, but shall not be required to
recover said claims in such manner and may proceed against Dr. Grove and his
transferees in liquidation at any time or times for recovery of indemnification
claims.
9.2 Indemnification By OMEGA and Acquisition. Subject to the limitations
set forth in Section 9.3, OMEGA and Acquisition, jointly and severally, each
agrees to defend, indemnify and hold Dr. Grove harmless from and against any
damages, liabilities, losses and expenses (including reasonable counsel fees) of
any kind or nature whatsoever which may be sustained or suffered by Dr. Grove
based upon a breach of any representation, warranty or covenant made by OMEGA or
Acquisition in this Agreement or in any exhibit, certificate, schedule or
financial statement delivered hereunder, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing covered by
such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. Indemnification
claims by OMEGA or Acquisition may be paid or otherwise satisfied as an offset
against the Purchase Note as set forth under Section 9.1, and, in the
alternative or after any such offset, the indemnification claims (or any balance
thereof) shall be paid or otherwise satisfied by Dr. Grove, or Dr. Grove's
transferees in liquidation, within 30 days after notice thereof is given by
OMEGA or Acquisition.
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In the event Dr. Grove indicates in a writing delivered to
OMEGA and Acquisition that he disputes the nature or amount of the claim, in
which event the dispute upon the election of any party hereto after said 30-day
period shall be referred to the American Arbitration Association to be settled
by alternative dispute resolution in Boston, Massachusetts in accordance with
the commercial alternative dispute resolution rules of said Association, with
the fees and expenses thereof to be borne 50% by Acquisition and 50% by the New
PC and Dr. Grove.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA or Acquisition if the conditions stated in Article VI have not been
satisfied at or prior to the Closing, or (iv) by Dr. Grove if the conditions
stated in Article VII have not been satisfied at or prior to the Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Grove upon written
notice to the other party, and if so terminated, all obligations of the parties
hereunder shall terminate without any further liability of either party to the
other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
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If to Dr. Grove and the Orthodontic Entity, to:
David T. Grove, D.M.D., M.S.
581 12th Street
Elko, Nevada 89801
If to the OMEGA or Acquisition, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other
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party so that such other party may seek a protective order or other appropriate
remedy. Each party covenants and agrees that it and its Representatives shall
keep confidential and shall not disclose all Confidential Information, except to
its Representatives and lenders who need to know such information and agree to
keep it confidential. Each party shall be responsible for any breach of this
provision by its Representatives. In the event that the Closing does not occur,
each party will promptly return to the other all copies of such other party's
Confidential Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a
contract made under the laws of the State of Delaware and, together with the
rights and obligations of the parties hereunder, shall be construed under and
governed by the laws of such state. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer
or payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Grove.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Grove, the Orthodontic Entity, OMEGA and Acquisition each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ David T. Grove D.M.D., M.S.
------------------------------------------
Printed Name: David T. Grove, D.M.D., M.S.
David T. Grove, LLC
By: /s/ David T. Grove
-------------------------------------------
Printed Name: David T. Grove, D.M.D., M.S.
Its President
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
-----------------------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
JOINDER
Omega Orthodontics of Elko, Inc. hereby joins in this Agreement as if an
original signator hereto.
Omega Orthodontics of Elko, Inc.
By:___________________________________
Printed Name:______________________
Its _______________________________
Duly Authorized
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Exhibit A
Financial Statement
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Exhibit B
Purchase Note
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Exhibit C
Notices
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Exhibit D
Orthodontic Entity's Certificate of Organization and Operating Agreement
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Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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Schedule 1
Representations and Warranties of
Dr. Grove and Orthodontic Entity to OMEGA and Acquisition
Each of the Orthodontic Entity and Dr. Grove hereby represents and
warrants to OMEGA and Acquisition as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized limited liability company
under the laws of the State. The Orthodontic Entity is a legally existing
limited liability company under the State Limited Liability Company Act (the
"Act") and no event has occurred which alone or after the passage of time would
result in the dissolution of the Orthodontic Entity. The Orthodontic Entity has
the full power to conduct business as currently conducted by the Orthodontic
Entity and to own and lease the property it purports to own. The copies of any
articles of organization or operating agreements, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Operating Agreement"), certified by Dr. Grove, attached
hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Grove, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Grove,
enforceable against the Orthodontic Entity and Dr. Grove in accordance with its
terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Articles or Operating Agreement; (b) a default in the performance of any
obligation, agreement or condition of any debt instrument from Dr. Grove or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr. Grove
or the Orthodontic Entity is a party or by which their assets are bound; or (d)
any violation of any law, regulation, administrative order or judicial order
applicable to Dr. Grove or the Orthodontic Entity, or their business or assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Articles or Operating Agreement;
(ii) conflict with or constitute (with or without the passage of time or the
giving of notice) a breach of, or default under, any debt instrument to which
Dr. Grove or the Orthodontic Entity is a party, or give any person the right to
accelerate any indebtedness or terminate any right; (iii) constitute (with or
without the passage of time or giving of notice) a default under or breach of
any other agreement, instrument or
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obligation to which the Orthodontic Entity or Dr. Grove is a party or by which
their assets are bound; or (iv) result in a violation of any law, regulation,
administrative order or judicial order applicable to the Orthodontic Entity, Dr.
Grove, their business or assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Grove have all necessary licenses
to practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Grove are subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Grove may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Grove's or the Orthodontic Entity's
license to practice orthodontics and neither the Orthodontic Entity nor Dr.
Grove is subject to any investigation, whether threatened, current or pending by
a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Grove, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statements and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the
Orthodontic Entity or Dr. Grove to issue or sell the Interests and there are
no pre-emptive rights with respect to any Interests. Dr. Grove is the
beneficial and record owner of the Interests. Dr. Grove has good title to
the Interests, free and clear of any liens, encumbrances or restrictions of
any kind. The Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good
repair, has been well maintained, substantially conforms with all applicable
ordinances, regulations and zoning or other laws. The Equipment is in good
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working order.
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which
change by itself or in conjunction with all other such changes, whether or
not arising in the ordinary course of business, has been materially
adverse with respect to the Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the
Interests or the Property, or the property subject to any lease, or which
remains in existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this
Schedule, there is no
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<PAGE>
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Orthodontic Entity or Dr. Grove, threatened against the Orthodontic Entity
or Dr. Grove, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality or governmental inquiry pending or, to the knowledge of the
Orthodontic Entity or Dr. Grove, threatened against or involving Dr. Grove or
the Orthodontic Entity, and there is no basis for any of the foregoing, and
there are no outstanding court orders, court decrees, or court stipulations to
which the Orthodontic Entity or Dr. Grove is a party which question this
Agreement or affect the transactions contemplated hereby, or which will result
in any materially adverse change in the business, properties, operations,
prospects, assets or in the condition, financial or otherwise, of Dr. Grove or
the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Grove from any professional
malpractice liability that might arise because of the Orthodontic Entity's or
Dr. Grove's practice activities over the preceding five (5) years. Prior to the
Closing, the New PC shall have obtained and shall continue to maintain, at its
cost, Occurrence Medical Malpractice Liability Insurance for Dr. Grove and the
New PC. The Orthodontic Entity possesses adequate insurance coverage for its
Property.
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<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Grove and
Orthodontic Entity to OMEGA and Acquisition
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<PAGE>
Schedule 2
Representations and Warranties of
OMEGA and Acquisition to Dr. Grove and Orthodontic Entity
Each of OMEGA and Acquisition hereby represents and warrants to
Orthodontic Entity and Dr. Grove as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered into
as of the ___ day of ___________ 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA" or "Surviving Entity"), Michael G. Churosh, D.D.S.
("Dr. Churosh"), who is duly licensed to practice orthodontics in the state of
Arizona (the "State"); and Michael G. Churosh, D.D.S., M.S., LTD.., a Arizona
professional corporation (the "Orthodontic Entity");
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 1105 North Litchfield Road, Goodyear, Arizona 85338 (the
"Orthodontic Offices") and furnishes orthodontic care to the general public
through the services of Dr. Churosh affiliated with the Orthodontic Entity.
C. Dr. Churosh presently holds 100% of the issued and outstanding capital
stock of the Orthodontic Entity (the issued and outstanding capital stock is
hereafter referred to herein as the "Interests").
D. Dr. Churosh owns all of the Interests, and desires to convert the status
of the Orthodontic Entity from a professional entity to a general purpose entity
and to form a new professional corporation or entity to continue his orthodontic
practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed
the Orthodontic Entity's unaudited financial and operations statement provided
by Dr. Churosh (the "Financial Statement"), a copy of which is attached hereto
as Exhibit A . Based on its review of the Orthodontic Entity and the Financial
Statement, OMEGA has issued the report (the "Report"), a copy of which has been
furnished to the Orthodontic Entity. The Orthodontic Entity and Dr. Churosh have
reviewed the Report and OMEGA's literature, and agree with the Report and the
concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Churosh have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into OMEGA (the "Merger") as provided
in Section 2.1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of
<PAGE>
which are hereby acknowledged to the full satisfaction of the parties hereto,
the parties hereto agree as follows:
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ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Churosh shall
cause the Orthodontic Entity's charter ("Charter") to be amended to convert the
Orthodontic Entity into a general purpose entity under the laws of the State.
1.2 Dr. Churosh shall form a new professional entity (the "New PC") under
the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 INTENTIONALLY OMITTED.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the terms
and conditions hereinafter set forth, the parties hereto agree to cause the
Merger to be consummated by filing with the Delaware Secretary of State and the
State Secretary of State (if required) a Certificate of Merger (the "Certificate
of Merger") in the form required by applicable law, duly executed and
acknowledged by the Surviving Entity, and taking all such further actions as may
be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and OMEGA will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) Five Hundred Thirty Thousand Two Hundred and Eight Dollars
($530,208.00) in cash (the "Cash Component"); and
(ii) Five Hundred Fifty-One Thousand Eight Hundred Forty Nine Dollars
($551,849.00) to be represented by issuance to Dr. Churosh of shares of
OMEGA common stock ("OMEGA Stock") based on a value per share equal to 100%
of the IPO Price (as defined below in Section 2.3) (the "Stock Component"),
which shall thereupon be issued to Dr. Churosh, fully paid and
nonassessable.
(c) INTENTIONALLY OMITTED.
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2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, and the balance, if
any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions contemplated
hereby (herein called the "Closing") shall be held immediately before the
Effective Time at the offices of Robinson & Cole, One Boston Place, Boston,
Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") ("IPO"), or at such other place, date or time as may be fixed
by mutual agreement of the parties; provided, however, that in no event shall
the Closing date be extended beyond June 30, 1997. On or before the IPO Closing,
OMEGA will notify the Orthodontic Entity of the projected IPO Closing Date
determined by OMEGA, in its sole discretion. As used herein "IPO Price" shall
mean the initial offering price to the public of OMEGA Stock as reflected on the
cover page of its Prospectus under the Securities Act for the IPO.
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr. Churosh
shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure OMEGA of the full benefit of
the same.
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(b) Evidence of malpractice insurance coverage for the current and five (5)
prior years, and if applicable, evidence of so-called "tail" insurance for such
period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Churosh and the Orthodontic
Entity in the attached Schedule 1 are hereby incorporated as if fully set forth
herein. The Representations and Warranties of OMEGA in the attached Schedule 2
are hereby incorporated as if fully set forth herein. Capitalized words and
expressions used in this Agreement and which are defined in said Schedules 1 and
2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. CHUROSH
AND THE ORTHODONTIC ENTITY
Dr. Churosh and the Orthodontic Entity hereby covenant and agree with OMEGA
as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit D) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
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<PAGE>
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Churosh or
the Orthodontic Entity to suffer the revocation, suspension or limitation of Dr.
Churosh's or the Orthodontic Entity's license.
(h) permit OMEGA and its authorized representatives to have full access to
all its properties, assets, records, tax returns, company records, contracts and
documents and furnish to OMEGA or its authorized representatives such financial
and other Information with respect to its business or properties as OMEGA may
from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Churosh and the Orthodontic Entity of
the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and shall use their
best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA.
OMEGA each hereby covenants and agrees with Dr. Churosh and the Orthodontic
Entity as follows:
5.1 Authorization from Others. Prior to the Closing, OMEGA will have
obtained all authorizations, consents and permits of others required to permit
the consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. OMEGA shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
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<PAGE>
The obligations of OMEGA to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article 6 will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of the Orthodontic Entity and Dr. Churosh contained in Schedule 1
shall be true and correct as though made on and as of the Closing, and Dr.
Churosh and the Orthodontic Entity shall have performed all of his or its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 New PC. Dr. Churosh shall have formed the New PC under the laws of the
State in order to commence the practice of orthodontics through the New PC. Dr.
Churosh shall have furnished (i) a certificate of the State Secretary of State
as to the legal existence and professional corporation good standing of New PC;
and (ii) a copy of the resolutions adopted by the board of directors and
stockholders of New PC authorizing and approving the Management Services
Agreement and the Stock Put/Call Option and Successor Designation Agreement.
6.3 Other Agreements. Dr. Churosh shall have executed and delivered, or
shall have caused the New PC to execute and deliver, to OMEGA or a wholly owned
subsidiary of and designated by OMEGA a Management Services Agreement and a
Stock Put/Call Option and Successor Designation Agreement, each having
substantially the terms and conditions of the forms hereof collectively attached
hereto as Exhibit E.
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
6.6 Notices. The Orthodontic Entity shall, at OMEGA expense, notify all
patients and obligors of accounts receivable, and third party payors and others
designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the form collectively attached
hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA. During the period from the date of the Financial Statement
to the Closing, there shall not have been any material adverse change in the
financial condition, results of operations, business or prospects of the
Orthodontic Entity, nor any material loss or damage to its assets, whether or
not insured, which materially affects the ability of Orthodontic Entity to
conduct its business. The Orthodontic Entity shall have delivered to OMEGA a
certificate, dated the date of Closing, to the
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<PAGE>
foregoing effect, and further to the effect that there are no Accounts Payable
or other liabilities as of the date of Closing that are not reflected on the
Financial Statement other than those which have been disclosed in writing to and
accepted in writing by OMEGA and which incurred since the date of the Financial
Statement in the ordinary course of business.
6.8 Due Diligence. OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Churosh and the Orthodontic Entity as not reflecting any data or information
which individually or in the aggregate, if previously disclosed, would have
indicated that there was a material adverse change in the business of the
Orthodontic Entity or in the condition or prospects (financial or otherwise) of
the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA,
regarding Dr. Churosh and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. CHUROSH
The obligations of the Orthodontic Entity and Dr. Churosh to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations and
warranties of OMEGA contained in Schedule 2 shall be true and correct as though
made on and as of the Closing and OMEGA shall have performed all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
7.2 INTENTIONALLY OMITTED.
7.3 Other Agreements. OMEGA shall have executed and delivered to Dr.
Churosh and New PC a Management Services Agreement and a Stock Put/Call Option
and Successor Designation Agreement, each having substantially the terms and
conditions of the forms hereof collectively attached hereto as Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr.
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Churosh is likely to result in the restraint or prohibition of the consummation
of any material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after the
Closing, Dr. Churosh agrees to cause the New PC to implement the suggestions in
the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA shall permit Dr. Churosh, his accountants and
attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Churosh as may be required after the Closing
and for other proper purposes approved by OMEGA.
8.3 License. Dr. Churosh shall maintain all licenses necessary to practice
orthodontics in the State. Dr. Churosh shall not commit or fail to commit any
act which would cause Dr. Churosh or the New PC to suffer the revocation,
suspension or limitation of Dr. Churosh's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Churosh. Subject to the limitations set forth in
Section 9.3, Dr. Churosh agrees to defend, indemnify and hold OMEGA harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by OMEGA based upon a breach of any representation, warranty or
covenant made by the Orthodontic Entity or Dr. Churosh in this Agreement or in
any exhibit, certificate, schedule or financial statement delivered hereunder,
or by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing covered by such representations, warranties or
covenants. OMEGA may at their option recover such indemnification claims by
OMEGA by set-off against amounts of principal and interest due under the
Purchase Note, but shall not be required to recover said claims in such manner
and may proceed against Dr. Churosh and his transferees in liquidation at any
time or times for recovery of indemnification claims.
9.2 Indemnification By OMEGA. Subject to the limitations set forth in
Section 9.3, OMEGA agrees to defend, indemnify and hold Dr. Churosh harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by Dr. Churosh based upon a breach of any representation, warranty
or covenant made by OMEGA in this Agreement or in any exhibit, certificate,
schedule or financial statement delivered hereunder, or by reason of any claim,
action or proceeding asserted or instituted growing out of any matter or thing
covered by such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
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(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. (a) Indemnification
claims by OMEGA (or any balance thereof)] shall be paid or otherwise satisfied
Dr. Churosh, or Dr. Churosh's transferees in liquidation, within 30 days after
notice thereof is given by OMEGA. In the event Dr. Churosh indicates in a
writing delivered to OMEGA that he disputes the nature or amount of the claim,
in which event the dispute upon the election of any party hereto after said
30-day period shall be settled in accordance with Section 9.5(b).
(b) If a dispute arises under this Agreement that cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit B hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(c) Notwithstanding anything in this Section 9.5 to the contrary, nothing
shall preclude any party from seeking a preliminary injunction or other
provisional relief, either prior to or during the proceeding provided for in
this section, if in its judgment such action is necessary to avoid irreparable
damage or to preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA if the conditions stated in Article VI have not been satisfied at or prior
to the Closing, or (iv) by Dr. Churosh if the conditions stated in Article VII
have not been satisfied at or prior to the
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Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Churosh upon written
notice to the other party, and if so terminated, all obligations of the parties
hereunder shall terminate without any further liability of either party to the
other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
If to Dr. Churosh and the Orthodontic Entity, to:
Michael G. Churosh, D.D.S.
1105 North Litchfield Road
Goodyear, Arizona 85338
If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
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10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party will
promptly return to the other all copies of such other party's Confidential
Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a contract
made under the laws of the State of Delaware and, together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such state. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer or
payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA and Dr.
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Churosh.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Churosh, the Orthodontic Entity, and OMEGA each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ Michael G. Churosh D.D.S.
-------------------------------
Printed Name: Michael G. Churosh, D.D.S.
Michael G. Churosh, D.D.S., M.S., LTD..
By: /s/ Michael G. Churosh
-------------------------------
Printed Name: Michael G. Churosh, D.D.S.
Its President
---------
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
-------------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
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<PAGE>
Exhibit A
Financial Statement
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<PAGE>
Exhibit B
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
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(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or
proceeding relating to the subject matter of the mediation
(including any investigation, action or proceeding which involves
persons not party to this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation,
action or proceeding, and all parties will oppose any effort to
have the mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
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11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. If the party initially raising the dispute to be resolved is
New PC or Dr. Churosh, the arbitration shall be held in Boston, Massachusetts,
and if the party initially raising the dispute to be resolved is the MSO or
OMEGA, the arbitration shall be held in Goodyear, Arizona. The sole arbitrator
shall be agreed upon by the parties within twenty (20) days after either party
elects to submit any issue to arbitration or, failing that, shall be selected by
CPR. A qualified arbitrator is one who is familiar with the principal subject
matter of the issues to be arbitrated such as by way of example, healthcare
services industry matters, management consulting services generally or business
law/corporate matters generally. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator shall
not have the authority to award multiple, punitive or consequential damages
under any circumstances.
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<PAGE>
Exhibit C
Notices
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<PAGE>
Exhibit D
Orthodontic Entity's Charter and
By-Laws
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<PAGE>
Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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<PAGE>
Schedule 1
Representations and Warranties of
Dr. Churosh and Orthodontic Entity to OMEGA
Each of the Orthodontic Entity and Dr. Churosh hereby represents and
warrants to OMEGA as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Churosh, attached
hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Churosh, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Churosh,
enforceable against the Orthodontic Entity and Dr. Churosh in accordance with
its terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Churosh or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr. Churosh
or the Orthodontic Entity is a party or by which their assets are bound; or (d)
any violation of any law, regulation, administrative order or judicial order
applicable to Dr. Churosh or the Orthodontic Entity, or their business or
assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Churosh or the
Orthodontic Entity is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (iii) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which the Orthodontic Entity or Dr.
Churosh is a party or by which their assets are bound; or (iv)
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result in a violation of any law, regulation, administrative order or judicial
order applicable to the Orthodontic Entity, Dr. Churosh, their business or
assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Churosh have all necessary licenses to
practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Churosh is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Churosh may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Churosh's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Churosh is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Churosh, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Churosh to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Churosh is the beneficial
and record owner of the Interests. Dr. Churosh has good title to the Interests,
free and clear of any liens, encumbrances or restrictions of any kind. The
Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good repair, has been well maintained, substantially
conforms with all applicable ordinances, regulations and zoning or other laws.
The Equipment is in good working order.
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<PAGE>
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change
by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse
with respect to the Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the Interests
or the Property, or the property subject to any lease, or which remains in
existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this
Schedule, there is no action, suit, claim, proceeding or investigation pending
or, to the knowledge of the Orthodontic Entity or Dr. Churosh, threatened
against the Orthodontic Entity or Dr. Churosh, at law or in equity, or before or
by any Federal, state, municipal or other governmental department,
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<PAGE>
commission, board, bureau, agency or instrumentality or governmental inquiry
pending or, to the knowledge of the Orthodontic Entity or Dr. Churosh,
threatened against or involving Dr. Churosh or the Orthodontic Entity, and there
is no basis for any of the foregoing, and there are no outstanding court orders,
court decrees, or court stipulations to which the Orthodontic Entity or Dr.
Churosh is a party which question this Agreement or affect the transactions
contemplated hereby, or which will result in any materially adverse change in
the business, properties, operations, prospects, assets or in the condition,
financial or otherwise, of Dr. Churosh or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Churosh from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Churosh's practice activities over the preceding five (5) years.
Prior to the Closing, the New PC shall have obtained and shall continue to
maintain, at its cost, Occurrence Medical Malpractice Liability Insurance for
Dr. Churosh and the New PC. The Orthodontic Entity possesses adequate insurance
coverage for its Property.
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<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Churosh and
Orthodontic Entity to OMEGA
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Schedule 2
Representations and Warranties of
OMEGA to Dr. Churosh and Orthodontic Entity
OMEGA hereby represents and warrants to Orthodontic Entity and Dr. Churosh
as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 2.8
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER is entered into
as of the ___ day of ___________ 1997, by and among Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA" or "Surviving Entity"); Clark E. Schneekluth,
D.D.S. ("Dr. Schneekluth"), who is duly licensed to practice orthodontics in the
state of California (the "State"); and Clark E. Schneekluth, D.D.S., P.C., a
California professional corporation (the "Orthodontic Entity").
RECITALS
A. OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices,
and which services are provided directly or indirectly through management
service organizations.
B. The Orthodontic Entity owns and operates an orthodontic practice with
offices located at 5112 Warner Avenue, Suite 104, Huntington Beach, California
92649 (the "Orthodontic Offices") and furnishes orthodontic care to the general
public through the services of Dr. Schneekluth affiliated with the Orthodontic
Entity.
C. Dr. Schneekluth presently holds 100% of the issued and outstanding
capital stock of the Orthodontic Entity (the issued and outstanding capital
stock is hereafter referred to herein as the "Interests").
D. Dr. Schneekluth owns all of the Interests, and desires to convert the
status of the Orthodontic Entity from a professional entity to a general purpose
entity and to form a new professional corporation or entity to continue his
orthodontic practice at the Orthodontic Offices.
E. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed
the Orthodontic Entity's unaudited financial and operations statement provided
by Dr. Schneekluth (the "Financial Statement"), a copy of which is attached
hereto as Exhibit A . Based on its review of the Orthodontic Entity and the
Financial Statement, OMEGA has issued the report (the "Report"), a copy of which
has been furnished to the Orthodontic Entity. The Orthodontic Entity and Dr.
Schneekluth have reviewed the Report and OMEGA's literature, and agree with the
Report and the concepts of OMEGA's Exceptional Practice.
F. Subject to the terms and conditions of this Agreement, OMEGA and Dr.
Schneekluth have determined that it is in the best interests of each to effect a
merger of the Orthodontic Entity with and into (the "Merger") as provided in
Section 2.1 hereof.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Schneekluth
shall cause the Orthodontic Entity's charter ("Charter") to be amended to
convert the Orthodontic Entity into a general purpose entity under the laws of
the State.
1.2 Dr. Schneekluth shall form a new professional entity (the "New PC")
under the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
1.3 INTENTIONALLY OMITTED.
ARTICLE II. MERGER
2.1 Merger; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the terms
and conditions hereinafter set forth, the parties hereto agree to cause the
Merger to be consummated by filing with the Delaware Secretary of State and the
State Secretary of State (if required) a Certificate of Merger (the "Certificate
of Merger") in the form required by applicable law, duly executed and
acknowledged by the Surviving Entity, and taking all such further actions as may
be required by law to make the Merger effective. The Merger shall become
effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State and the State Secretary of State (if required) (the
"Effective Time"), and OMEGA will be the surviving entity.
(b) At the Effective Time, the Interests of Orthodontic Entity outstanding
immediately prior to the Effective Time shall, on such date, by virtue of the
Merger and upon surrender to OMEGA of the certificates therefor, duly endorsed
and transferable, free and clear of any liens, encumbrances, restrictions or
claims of any kind (other than those liens, encumbrances, restrictions and
claims expressly disclosed to OMEGA and affirmatively accepted by OMEGA prior to
the Effective Time), without any further action on the part of any holder
thereof, be converted into the right to receive an aggregate consideration (the
"Consideration") of:
(i) One Hundred Fourteen Thousand, Sixteen Dollars ($114,016.00) in
cash (the "Cash Component");
(ii) Fifty-Three Thousand, Five Hundred Eighty-Eight Dollars
($53,588.00) to be represented by a promissory note (the "Purchase Note")
payable to Dr. Schneekluth (the "Note Component") in the form attached
hereto as Exhibit B; and
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(iii) One Hundred Seventy-Four Thousand, Four Hundred Forty-Four
Dollars ($174,444.00) to be represented by issuance to Dr. Schneekluth of
shares of OMEGA common stock ("OMEGA Stock") based on a value per share
equal to 100% of the IPO Price (as defined below in Section 2.3) (the
"Stock Component"), which shall thereupon be issued to Dr. Schneekluth,
fully paid and nonassessable.
(c) INTENTIONALLY OMITTED.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as determined
by OMEGA from the information set forth in the Financial Statement. At OMEGA's
option, OMEGA will cause an audit (the "Audit") of the Financial Statement and
the books and records of the Orthodontic Entity to be completed prior to Closing
to confirm the accuracy and completeness of the information in the Financial
Statement.
(b) The Consideration shall be subject to adjustments at Closing for: (i)
prepaid and underpaid rent and other lease obligations, if the leases are to be
continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in the
following order of priority; first to the Cash Component, second, to the Note
Component, and the balance, if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions contemplated
hereby (herein called the "Closing") shall be held immediately before the
Effective Time at the offices of Robinson & Cole, One Boston Place, Boston,
Massachusetts 02108 on the date of the closing of OMEGA's initial public
offering of its securities (the "IPO Closing") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") ("IPO"), or at such other place, date or time as may be fixed
by mutual agreement of the parties; provided, however, that in no event shall
the Closing date be extended beyond June 30, 1997. On or before the IPO Closing,
OMEGA will notify the Orthodontic Entity of the projected IPO Closing Date
determined by OMEGA, in its sole discretion. As used herein "IPO Price" shall
mean the initial offering price to the public of OMEGA Stock as reflected on the
cover page of its Prospectus under the Securities Act for the IPO.
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<PAGE>
2.4 Filing Certificate of Merger. Contemporaneous with the Closing, the
duly executed Certificate(s) of Merger shall be filed with the Delaware
Secretary of State and the State Secretary of State (if required).
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr.
Schneekluth shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and other
company books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Merger as are necessary to assure OMEGA of the full benefit of
the same.
(b) Evidence of malpractice insurance coverage for the current and five (5)
prior years, and if applicable, evidence of so-called "tail" insurance for such
period naming the Orthodontic Entity (and any successor by merger) as a
co-insured or otherwise assigning to the Orthodontic Entity and its successor by
merger the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Schneekluth and the Orthodontic
Entity in the attached Schedule 1 are hereby incorporated as if fully set forth
herein. The Representations and Warranties of OMEGA in the attached Schedule 2
are hereby incorporated as if fully set forth herein. Capitalized words and
expressions used in this Agreement and which are defined in said Schedules 1 and
2 shall have the same meaning as they are given therein.
ARTICLE IV. COVENANTS OF DR. SCHNEEKLUTH
AND THE ORTHODONTIC ENTITY
Dr. Schneekluth and the Orthodontic Entity hereby covenant and agree with
OMEGA as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, they will do the following unless OMEGA shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course, and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
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(d) refrain from making any change or incurring any obligation to make a
change in its Charter or By-laws (certified copies of which are attached hereto
as Exhibit D) or authorized or issued capital stock, except as contemplated by
this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect of capital stock, or making any direct or
indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use its best efforts to keep intact its business organization, to keep
available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Schneekluth
or the Orthodontic Entity to suffer the revocation, suspension or limitation of
Dr. Schneekluth's or the Orthodontic Entity's license.
(h) permit OMEGA and its authorized representatives to have full access to
all its properties, assets, records, tax returns, company records, contracts and
documents and furnish to OMEGA or its authorized representatives such financial
and other Information with respect to its business or properties as OMEGA may
from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, they will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Schneekluth and the Orthodontic
Entity of the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon becoming aware
of the actual, impending or threatened occurrence of any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
they shall give detailed written notice thereof to OMEGA and shall use their
best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his or its best efforts to
perform and fulfill all conditions and obligations on his or its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
ARTICLE V. COVENANTS OF OMEGA.
OMEGA each hereby covenants and agrees with Dr. Schneekluth and the
Orthodontic Entity as follows:
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5.1 Authorization from Others. Prior to the Closing, OMEGA will have
obtained all authorizations, consents and permits of others required to permit
the consummation by it of the transactions contemplated by this Agreement.
5.2 Consummation of Agreement. OMEGA shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed or
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
The obligations of OMEGA to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 6 will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Orthodontic Entity and Dr. Schneekluth contained in
Schedule 1 shall be true and correct as though made on and as of the Closing,
and Dr. Schneekluth and the Orthodontic Entity shall have performed all of his
or its obligations hereunder which by the terms hereof are to be performed on or
before the Closing.
6.2 New PC. Dr. Schneekluth shall have formed the New PC under the laws
of the State in order to commence the practice of orthodontics through the New
PC. Dr. Schneekluth shall have furnished (i) a certificate of the State
Secretary of State as to the legal existence and professional corporation good
standing of New PC; and (ii) a copy of the resolutions adopted by the board of
directors and stockholders of New PC authorizing and approving the Management
Services Agreement and the Stock Put/Call Option and Successor Designation
Agreement.
6.3 Other Agreements. Dr. Schneekluth shall have executed and delivered, or
shall have caused the New PC to execute and deliver, to OMEGA or a wholly owned
subsidiary of and designated by OMEGA a Management Services Agreement and a
Stock Put/Call Option and Successor Designation Agreement, each having
substantially the terms and conditions of the forms hereof collectively attached
hereto as Exhibit E .
6.4 Initial Public Offering. OMEGA shall have completed the IPO.
6.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for OMEGA is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
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6.6 Notices. The Orthodontic Entity shall, at OMEGA's expense, notify all
patients and obligors of accounts receivable, and third party payors and others
designated by OMEGA of the Merger and the other transactions contemplated
hereunder pursuant to notices substantially in the form collectively attached
hereto as Exhibit C.
6.7 Financial Condition. The financial condition of the Orthodontic Entity
shall not be materially adversely different from the Financial Statement, as
determined by OMEGA. During the period from the date of the Financial Statement
to the Closing, there shall not have been any material adverse change in the
financial condition, results of operations, business or prospects of the
Orthodontic Entity, nor any material loss or damage to its assets, whether or
not insured, which materially affects the ability of Orthodontic Entity to
conduct its business. The Orthodontic Entity shall have delivered to OMEGA a
certificate, dated the date of Closing, to the foregoing effect, and further to
the effect that there are no Accounts Payable or other liabilities as of the
date of Closing that are not reflected on the Financial Statement other than
those which have been disclosed in writing to and accepted in writing by OMEGA
and which incurred since the date of the Financial Statement in the ordinary
course of business.
6.8 Due Diligence. OMEGA, acting in good faith and in its sole discretion,
shall be reasonably satisfied with the results of its "Due Diligence" on Dr.
Schneekluth and the Orthodontic Entity as not reflecting any data or information
which individually or in the aggregate, if previously disclosed, would have
indicated that there was a material adverse change in the business of the
Orthodontic Entity or in the condition or prospects (financial or otherwise) of
the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA,
regarding Dr. Schneekluth and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. SCHNEEKLUTH
The obligations of the Orthodontic Entity and Dr. Schneekluth to consummate
this Agreement and the transactions contemplated hereby are subject to the
condition that on or before the Closing the actions required by this Article 7
will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations and
warranties of OMEGA contained in Schedule 2 shall be true and correct as though
made on and as of the Closing and OMEGA shall have performed all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
7.2 INTENTIONALLY OMITTED.
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7.3 Other Agreements. OMEGA or wholly owned subsidiary of and designated by
OMEGA shall have executed and delivered to Dr. Schneekluth and New PC a
Management Services Agreement and a Stock Put/Call Option and Successor
Designation Agreement, each having substantially the terms and conditions of the
forms hereof collectively attached hereto as Exhibit E.
7.4 Initial Public Offering. OMEGA shall have completed the IPO.
7.5 Absence of Certain Litigation. There shall not be any injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, or suit, action
or other proceeding which in the reasonable opinion of counsel for Dr.
Schneekluth is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions. On and after the
Closing, Dr. Schneekluth agrees to cause the New PC to implement the suggestions
in the Report and the concepts of OMEGA's Exceptional Practice.
8.2 Books and Records. OMEGA shall permit Dr. Schneekluth, his accountants
and attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Schneekluth as may be required after the
Closing and for other proper purposes approved by OMEGA.
8.3 License. Dr. Schneekluth shall maintain all licenses necessary to
practice orthodontics in the State. Dr. Schneekluth shall not commit or fail to
commit any act which would cause Dr. Schneekluth or the New PC to suffer the
revocation, suspension or limitation of Dr. Schneekluth's or the New PC's
license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Schneekluth. Subject to the limitations set
forth in Section 9.3, Dr. Schneekluth agrees to defend, indemnify and hold OMEGA
harmless from and against any damages, liabilities, losses and expenses
(including reasonable counsel fees) of any kind or nature whatsoever which may
be sustained or suffered by OMEGA based upon a breach of any representation,
warranty or covenant made by the Orthodontic Entity or Dr. Schneekluth in this
Agreement or in any exhibit, certificate, schedule or financial statement
delivered hereunder, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing covered by such representations,
warranties or covenants. OMEGA may at their option recover such indemnification
claims by OMEGA by set-off against amounts of principal and interest due under
the Purchase Note, but shall not be required to recover said claims in such
manner and may proceed against Dr. Schneekluth and his transferees in
liquidation at any time or times for recovery of indemnification claims.
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9.2 Indemnification By OMEGA. Subject to the limitations set forth in
Section 9.3, OMEGA agrees to defend, indemnify and hold Dr. Schneekluth harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) of any kind or nature whatsoever which may be sustained
or suffered by Dr. Schneekluth based upon a breach of any representation,
warranty or covenant made by OMEGA in this Agreement or in any exhibit,
certificate, schedule or financial statement delivered hereunder, or by reason
of any claim, action or proceeding asserted or instituted growing out of any
matter or thing covered by such representations, warranties or covenants.
9.3 Exclusions. Notwithstanding Sections 9.1 and 9.2:
(a) no indemnification shall be payable to the extent any claim is covered
by insurance; and
(b) no indemnification shall be payable with respect to claims asserted
more than five (5) years after the Closing.
9.4 Notice: Defense of Claims. Prompt written notice of each claim for
indemnification hereunder shall be given to the other party, specifying the
amount and nature of the claim, and of any matter which in the opinion of the
claimant is likely to give rise to an indemnification claim. The indemnifying
party shall have the right to participate at its own expense in the defense of
any such matter or its settlement. If, in the opinion of the indemnified party,
its financial condition or business would not be impaired thereby, such party
may authorize the indemnifying party to take over the defense of such matter so
long as such defense is expeditious. Failure to give notice of a matter which
may give rise to an indemnification claim shall not affect the rights of any
party to collect such claim from the other party or its transferees in
liquidation.
9.5 Payment of Claims; Alternative Dispute Resolution. (a) Indemnification
claims by OMEGA may be paid or otherwise satisfied as an offset against the
Purchase Note as set forth under Section 9.1, and, in the alternative or after
any such offset, the indemnification claims (or any balance thereof) shall be
paid or otherwise satisfied Dr. Schneekluth, or Dr. Schneekluth's transferees in
liquidation, within 30 days after notice thereof is given by OMEGA. In the event
Dr. Schneekluth indicates in a writing delivered to OMEGA that he disputes the
nature or amount of the claim, in which event the dispute upon the election of
any party hereto after said 30-day period shall be settled in accordance with
Section 9.5(b).
(b) If a dispute arises under this Agreement that cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit F hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
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(c) Notwithstanding anything in this Section 9.5 to the contrary, nothing
shall preclude any party from seeking a preliminary injunction or other
provisional relief, either prior to or during the proceeding provided for in
this section, if in its judgment such action is necessary to avoid irreparable
damage or to preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 Termination.
(a) At any time prior to the Closing, this Agreement may be terminated (i)
by mutual consent of the parties with the approval of their respective board of
directors or members, (ii) by either if there has been a material
misrepresentation, breach of warranty or breach of covenant by the other party
in its representations, warranties and covenants set forth herein, (iii) by
OMEGA if the conditions stated in Article VI have not been satisfied at or prior
to the Closing, or (iv) by Dr. Schneekluth if the conditions stated in Article
VII have not been satisfied at or prior to the Closing.
(b) If the IPO is not successfully completed within six (6) months of this
Agreement, this Agreement may be terminated by OMEGA or Dr. Schneekluth upon
written notice to the other party, and if so terminated, all obligations of the
parties hereunder shall terminate without any further liability of either party
to the other, except that each party shall remain obligated in respect of the
provisions of Section 10.3 and 10.7 which shall survive any such termination.
10.2 Survival of Warranties and Other Obligations. All representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by either party to the
other party incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the other party and shall survive the
Closing regardless of any investigation and shall not merge in the performance
of any obligation by either party hereto.
10.3 Fees and Expenses. Each of the parties will bear its or his own
expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement.
10.4 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered at said address, or (b) in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mail, postage prepaid and registered or certified, return receipt
requested, or sent by reputable overnight courier:
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If to Dr. Schneekluth and the Orthodontic Entity, to:
Clark E. Schneekluth, D.D.S.
5112 Warner Avenue, Suite 104
Huntington Beach, California 92649
If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties.
10.7 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including without limitation any analyses, computations, studies or other
documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) became available
to the public other than as a result of such party's violation of this
Agreement, (ii) became available to such party from a source other than the
other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iii) is required to be disclosed by applicable law, provided that promptly
after being compelled to disclose any such information or data, the party being
so compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party
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will promptly return to the other all copies of such other party's Confidential
Information.
10.8 Governing Law; Severability. This Agreement shall be deemed a contract
made under the laws of the State of Delaware and, together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such state. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an offer or
payment to the other party or any affiliate of the other party of any cash or
other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Merger represents the fair market value of the
Orthodontic Entity and is not in any way related to or dependent upon referrals
by and between OMEGA, Acquisition and Dr. Schneekluth.
10.10 Further Assurances. Following the execution of this Agreement, Dr.
Schneekluth, the Orthodontic Entity and OMEGA each agrees:
(a) to deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement, and the transactions contemplated herein;
(b) to confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally or in writing of any
change or event resulting in or which, insofar as can reasonably be foreseen
could result in, a material adverse effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein; and
(c) to provide the other (or its counsel) promptly with copies of all
filings made by such party with any state or federal governmental entity in
connection with this Agreement or the transactions contemplated hereby.
10.11 Counterparts; Section Headings; Gender. This Agreement may be
executed, accepted and delivered in any number of counterparts, but all
counterparts shall together constitute but one and the same instrument. The
underlined section headings are inserted for convenience of reference only and
are not to be construed as part of this Agreement. The use of the masculine or
neuter gender includes each of the other genders.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
/s/ Clark E. Schneekluth D.D.S.
------------------------------------------
Printed Name: Clark E. Schneekluth, D.D.S.
Clark E. Schneekluth, D.D.S., P.C.
By: /s/ Clark E. Schneekluth
---------------------------------------
Printed Name: Clark E. Schneekluth, D.D.S.
Its President
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
----------------------------------------
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
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Exhibit A
---------
Financial Statement
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Exhibit B
---------
Purchase Note
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Exhibit C
---------
Notices
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Exhibit D
---------
Orthodontic Entity's Charter and
By-Laws
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Exhibit E
---------
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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Exhibit F
---------
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
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9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. If the party initially raising the dispute to be resolved is
New PC or Dr. Schneekluth, the arbitration shall be held in Boston,
Massachusetts, and if the party initially raising the dispute to be resolved is
OMEGA, the arbitration shall be held in Huntington Beach, California. The sole
arbitrator shall be agreed upon by the parties within twenty (20) days after
either party elects to submit any issue to arbitration or, failing that, shall
be selected by CPR. A qualified arbitrator is one who is familiar with the
principal subject matter of the issues to be arbitrated such as by way of
example, healthcare services industry matters, management consulting services
generally or business law/corporate matters generally. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The
arbitrator shall not have the authority to award multiple, punitive or
consequential damages under any circumstances.
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Schedule 1
Representations and Warranties of
Dr. Schneekluth and Orthodontic Entity to OMEGA
Each of the Orthodontic Entity and Dr. Schneekluth hereby represents and
warrants to OMEGA as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Schneekluth,
attached hereto as Exhibit D are complete and correct.
2. Authorization of Transaction. All necessary action, company or
otherwise, has been taken by the Orthodontic Entity to authorize the execution
of the Agreement by Dr. Schneekluth, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of the Orthodontic Entity and Dr. Schneekluth,
enforceable against the Orthodontic Entity and Dr. Schneekluth in accordance
with its terms.
3. Present Compliance with Obligations and Laws. Except as disclosed on
Exhibit X attached to this Schedule, there is not: (a) any violation of the
Charter or By-Laws; (b) a default in the performance of any obligation,
agreement or condition of any debt instrument from Dr. Schneekluth or the
Orthodontic Entity which (with or without the passage of time or the giving of
notice) affords to any person the right to accelerate any material indebtedness
or terminate any right; (c) a default of or breach of (with or without the
passage of time or the giving of notice) any other contract to which Dr.
Schneekluth or the Orthodontic Entity is a party or by which their assets are
bound; or (d) any violation of any law, regulation, administrative order or
judicial order applicable to Dr. Schneekluth or the Orthodontic Entity, or their
business or assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement, nor
the performance of the transactions contemplated hereby, will: (i) constitute a
breach or violation of Orthodontic Entity's Charter or By-Laws; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which Dr. Schneekluth or
the Orthodontic Entity is a party, or give any person the right to accelerate
any indebtedness or terminate any right; (iii) constitute (with or without the
passage of
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<PAGE>
time or giving of notice) a default under or breach of any other agreement,
instrument or obligation to which the Orthodontic Entity or Dr. Schneekluth is a
party or by which their assets are bound; or (iv) result in a violation of any
law, regulation, administrative order or judicial order applicable to the
Orthodontic Entity, Dr. Schneekluth, their business or assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Schneekluth have all necessary licenses
to practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Schneekluth is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Schneekluth may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Schneekluth's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Schneekluth is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Schneekluth, the Financial Statement is complete and correct and fairly presents
in all material respects the financial position of the Orthodontic Entity as at
the date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Schneekluth to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Schneekluth is the
beneficial and record owner of the Interests. Dr. Schneekluth has good title to
the Interests, free and clear of any liens, encumbrances or restrictions of any
kind. The Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased
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<PAGE>
by the Orthodontic Entity is in good repair, has been well maintained,
substantially conforms with all applicable ordinances, regulations and zoning or
other laws. The Equipment is in good working order.
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed and has paid all taxes owing except taxes which have not yet accrued
or otherwise become due for which adequate provision has been made in the
Financial Statement. All transfer, excise or other taxes payable by reason of
the Merger pursuant to the Agreement shall be paid or provided for by the
Orthodontic Entity after the Closing out of the Consideration to be received
upon consummation of the Merger.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others, or liabilities for taxes due or then accrued or to
become due), except (i) liabilities stated or adequately reserved against on the
Financial Statement, (ii) liabilities not in excess of $5,000 arising in the
ordinary course of business since the date of the Financial Statement, and (iii)
liabilities disclosed in Exhibit X to this Schedule. There is no fact which
materially adversely affects, or may in the future (so far as can now be
reasonably foreseen) materially adversely affect, the business, properties,
operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date of
the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the Interests
or the Property, or the property subject to any lease, or which remains in
existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic Entity
other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
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<PAGE>
11. Litigation. Except for matters described on Exhibit X to this Schedule,
there is no action, suit, claim, proceeding or investigation pending or, to the
knowledge of the Orthodontic Entity or Dr. Schneekluth, threatened against the
Orthodontic Entity or Dr. Schneekluth, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality or governmental inquiry pending or, to the
knowledge of the Orthodontic Entity or Dr. Schneekluth, threatened against or
involving Dr. Schneekluth or the Orthodontic Entity, and there is no basis for
any of the foregoing, and there are no outstanding court orders, court decrees,
or court stipulations to which the Orthodontic Entity or Dr. Schneekluth is a
party which question this Agreement or affect the transactions contemplated
hereby, or which will result in any materially adverse change in the business,
properties, operations, prospects, assets or in the condition, financial or
otherwise, of Dr. Schneekluth or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Schneekluth from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Schneekluth's practice activities over the preceding five (5)
years. Prior to the Closing, the New PC shall have obtained and shall continue
to maintain, at its cost, Occurrence Medical Malpractice Liability Insurance for
Dr. Schneekluth and the New PC. The Orthodontic Entity possesses adequate
insurance coverage for its Property.
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<PAGE>
EXHIBIT X
---------
Exceptions to Representations and
Warranties of Dr. Schneekluth and
Orthodontic Entity to OMEGA and Acquisition
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<PAGE>
Schedule 2
----------
Representations and Warranties of
OMEGA to Dr. Schneekluth and Orthodontic Entity
OMEGA hereby represents and warrants to Orthodontic Entity and Dr.
Schneekluth as follows:
1. Organization of OMEGA. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
OMEGA ORTHODONTICS, INC.
FIRST: The name of the Corporation is Omega Orthodontics, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New
Castle. The name of the registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is Ten Million (10,000,000). All such shares are of one class
and are shares of Common Stock with a par value of one cent ($.01) per share.
FIFTH: The number of directors shall initially be five (5) and, thereafter,
shall be fixed by, or in the manner provided in, the By-Laws.
SIXTH: A director of this Corporation shall not be personally liable to the
Corporation 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 Corporation 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 Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
SIXTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
SEVENTH: The name and address of the sole incorporator is as follows:
NAME MAILING ADDRESS
Robert J. Schulhof 3621 Silver Spur Lane
Acton, CA 935120
<PAGE>
I, the undersigned, being the Incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 3rd day of August, 1996.
/s/ Robert J. Schulhof
-------------------------------------
Robert J. Schulhof, Sole Incorporator
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OMEGA ORTHODONTICS, INC.
----------------------------------------
Adopted in Accordance with the Provisions
of Section 242 of the General Corporation Law
of the State of Delaware
------------------------------------------
Omega Orthodontics, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The name of the Corporation is Omega Orthodontics, Inc., which is also
the name under which the Corporation was originally incorporated.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on August 30, 1996.
3. The Certificate of Incorporation of the Corporation is hereby amended
as follows:
By striking out the whole of Articles FOURTH and SIXTH as they now exist
and inserting in lieu and instead new Articles FOURTH and SIXTH, and by adding
new Articles EIGHTH, NINTH, TENTH, ELEVENTH, TWELFTH and THIRTEENTH, to read
respectively as follows:
"FOURTH: A description of each class of capital stock of the Corporation
and the voting rights, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof is as follows:
PART A. CAPITAL STOCK.
The Corporation shall have two classes of capital stock ("Capital Stock"):
Common
<PAGE>
Stock, $.01 par value ("Common Stock"); and Preferred Stock, $.01 par value
("Preferred Stock"). The total authorized number of shares of each class of
Capital Stock is 9,500,000 shares of Common Stock and 500,000 shares of
Preferred Stock. Unless specifically otherwise provided in this Article FOURTH,
all shares of Capital Stock shall be identical and shall entitle the holders
thereof to the same powers, rights and privileges.
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<PAGE>
PART B. COMMON STOCK
The total authorized number of shares of Common Stock is 9,500,000.
Paragraph 1. Dividends.
Whenever there shall have been declared and paid, or set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the Common Stock as to the payment of dividends or to any
sinking fund, retirement fund or other retirement payments, the full amount of
such dividends and sinking fund, retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
Common Stock, then dividends may be paid on the Common Stock, and on any class
of stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends, but only when and as declared by
the board of directors of the Corporation.
Paragraph 2. Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after there shall have been
declared and paid, or set aside for payment, to the holders of the outstanding
shares of any class of stock having preference over the Common Stock in any such
event, the full preferential amounts (including accrued but unpaid dividends) to
which they are respectively entitled, the holders of the Common Stock and of any
class of stock entitled to participate therewith, in whole or in part, as to the
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Corporation, including liabilities
of the Corporation to holders of the Preferred Stock, to receive the remaining
assets of the Corporation available for distribution, in cash or in kind.
Each share of the Common Stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of the Common Stock of the Corporation.
Paragraph 3. Voting Rights.
The holders of shares of Common Stock shall be entitled to one vote per
share on all matters to be voted on by stockholders.
PART C. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The board of directors of the Corporation is hereby authorized, within and
subject to the limitations and restrictions stated in this Certificate of
Incorporation, to establish and designate, from time to time, the different
series of Preferred Stock and the variations in the relative rights,
preferences, powers, privileges and the restrictions, qualifications and
limitations granted to or imposed upon any wholly
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<PAGE>
unissued series of Preferred Stock as provided in the next succeeding paragraph;
and to increase or decrease the number of shares constituting any such series;
and to increase or decrease the number of shares of any series subsequent to the
issue of shares of that series, but not below the number of shares of such
series then outstanding. The shares then constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series. The board of directors is authorized
to establish, from time to time, one or more series of Preferred Stock and, to
the extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, to fix and determine such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, or
restrictions thereof, including, but not limited to:
(a) the number of shares to constitute such series and the
distinctive designation of such series;
(b) the dividend rate on the shares of such series and preferences,
if any, and the special and relative rights of such shares of such series
as to dividends;
(c) whether or not the shares of such series shall be redeemable,
and, if redeemable, the price, terms and manner of redemption;
(d) the preferences, if any, and the special and relative rights of
the shares of such series upon liquidation of the Corporation;
(e) whether or not the shares of such series shall be subject to the
operation of a sinking or purchase fund and, if so, the terms and
provisions of such fund;
(f) whether or not the shares of such series shall be convertible
into shares of any other class or of any other series of the same or any
other class of stock of the Corporation and, if so, the conversion price
or ratio and other conversion rights;
(g) the conditions under which the shares of such series shall have
separate voting rights or no voting rights; and
(h) such other designations, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series to the full extent now and
hereafter permitted by the General Corporation Law of the State of
Delaware.
SIXTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not limit or eliminate the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve
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<PAGE>
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If
there is any amendment or revocation of this provision, the liability of any
director for any action taken prior to the amendment or revocation will not be
affected thereby. If the General Corporation Law of the State of Delaware is
hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
EIGHTH: The Corporation is to have perpetual existence.
-5-
<PAGE>
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the Corporation.
TENTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the Corporation.
TWELFTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all of the stockholders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
THIRTEENTH: The Corporation may, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as now or
hereafter in effect, indemnify any and all persons whom it shall have the power
to indemnify under said Section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said Section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which a person indemnified may be entitled under any by-laws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall 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. No amendment or repeal of
this provisions shall preclude the Corporation from providing indemnity to any
person on account of any acts or omissions occurring prior to such amendment or
repeal.
4. The amendment to the Certificate of Incorporation herein certified has
been duly
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<PAGE>
adopted in the manner prescribed by Section 242 of the General Corporation Law
of the State of Delaware. Written consent to the adoption of such amendment to
the Certificate of Incorporation has been given in accordance with Section 228
of the General Corporation Law of the State of Delaware, and written notice of
the adoption of said amendment has been given to those stockholders who have not
consented in writing as provided in said Section 228.
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
and the Secretary of Omega Orthodontics, Inc. have signed and acknowledged this
Certificate of Amendment as of this 31st day of January, 1997.
/s/ Robert J. Schulhof
--------------------------------
Robert J. Schulhof, President and
Chief Executive Officer
ATTEST:
/s/ C. Joel Glovsky
- --------------------------------
C. Joel Glovsky, Secretary
-7-
Exhibit 3.3
BY-LAWS
OF
OMEGA ORTHODONTICS, INC.
A DELAWARE CORPORATION
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington, State
of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place either within or without the State of Delaware as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of the stockholders shall be held on the second
Tuesday of March if not a legal holiday, and if a legal holiday, then on the
next secular day following, at 10:00 A.M., or at such other date and time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting, at which they shall elect directors by a plurality
vote and transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the
<PAGE>
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2
<PAGE>
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
secretary at the request in writing of a majority of the board of directors.
Such request shall state the purpose or purposes of the proposed meeting. Unless
otherwise prescribed by statute or by the certificate of incorporation,
stockholders of this corporation shall not be entitled to request a special
meeting of stockholders.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the issued and outstanding shares entitled to vote shall decide
any question brought before such meeting, unless the question is one upon which
by express provision of the statutes or of the certificate of incorporation, a
different vote is required in which case such express provision shall govern and
control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The corporation shall have not more than nine (9) nor less than
one (1)
3
<PAGE>
directorship. The number of directorships shall be the number fixed by
resolution of the incorporators, stockholders or directors, or, in the absence
thereof, shall be the number of directors elected at the preceding annual
meeting of stockholders. Each director shall hold office until the next annual
stockholders meeting and until such director's successor shall have been elected
and qualified, or until such director's earlier resignation, or removal from
office in accordance with the provisions of the bylaws, death or incapacity.
Section 2. Any director may be removed from office at any time, with or
without cause, by the holders of a majority of the shares entitled to vote at an
election of directors.
Section 3. Any vacancies in the board of directors, however occurring,
whether by death, resignation, retirement, disqualification, removal from office
in accordance with the provisions of the by-laws, or otherwise, may be filled by
the directors remaining in office acting by a majority vote, though less than a
quorum, or by a sole remaining director, and any director so chosen shall hold
office until the next annual stockholders meeting and until such director's
successor shall have been elected and qualified, or until such director's
earlier resignation, removal from office in accordance with the provisions of
the by-laws, death or incapacity.
Section 4. The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 7. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 8. Special meetings of the board may be called by the president on
three days' notice to each director, either personally or by telegram or
telefax, or on seven days' notice to each director by mail; special meetings
shall be called by the president or the secretary in like manner and on like
notice on the written request of two directors unless the board consists of
4
<PAGE>
only one director, in which case special meetings shall be called by the
president or the secretary in like manner and on like notice on the written
request of the sole director.
Section 9. At all meetings of the board a majority of the total number of
directors shall constitute a quorum for the transaction of business, and the act
of a majority of the total number of directors shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
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Section 10. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes or
proceedings of the board or committee.
Section 11. Unless otherwise restricted by the certificate of incorporation
or these by-laws, members of the board of directors, or any committee designated
by the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given in writing, by mail,
addressed to such director or stockholder, at such director's or stockholder's
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by personal delivery, telegram or telefax.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose a chairman of the board of
directors, additional vice-presidents and one or more assistant secretaries and
assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and
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perform such duties as shall be determined from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be fixed
by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. If the board of directors elects a chairman, the chairman shall
preside at all meetings of the stockholders and the board of directors.
THE PRESIDENT
Section 7. The president shall be the chief executive officer of the
corporation and shall, subject to the direction of the chairman (if one is
elected) and the board of directors, have general responsibility for the active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect. In the absence of
the chairman, or if no chairman is elected, the president shall preside at all
meetings of the stockholders and the board of directors.
Section 8. Either the chairman or the president may execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
THE VICE-PRESIDENTS
Section 9. In the absence of the president or in the event of the
president's inability or refusal to act, the vice president (or in the event
there be more than one vice president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties
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for the standing committees when required. The secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform such other duties as may be prescribed by
the board of directors or president, under whose supervision the secretary shall
be. The secretary shall have custody of the corporate seal of the corporation
and the secretary, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the secretary's signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by such other officer's
signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of the secretary's inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 13. The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all the treasurer's transactions as treasurer and of the financial condition of
the corporation.
Section 14. If required by the board of directors, the treasurer shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the treasurer's office and for the
restoration to the corporation, in case of the treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the treasurer's possession or under the
treasurer's control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of the treasurer's inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
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ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or certificates. Certificates shall be signed by, or in the name of
the corporation by, the chairman or vice-chairman of the board of directors, the
president, or a vice-president of the corporation, and the treasurer, an
assistant treasurer, the secretary, or an assistant secretary of the
corporation.
Section 2. Any of or all the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such officer,
transfer agent or registrar were such officer, transfer agent or registrar at
the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or
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other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in advance,
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. Definitions. For purposes of these by-laws, the following terms
shall have the meanings indicated:
"Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent, trustee or fiduciary of the corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request of
the corporation.
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"Court" means the Court of Chancery of the State of Delaware, the court in
which the Proceeding in respect of which indemnification is sought by a Covered
Person shall have been brought or is pending, or another court having subject
matter jurisdiction and personal jurisdiction over the parties.
"Covered Person" means a person who is a present or former director or
officer of the corporation and shall include such person's legal
representatives, heirs, executors and administrators.
"Disinterested" describes any individual, whether or not that individual is
a director, officer, employee or agent of the corporation who is not and was not
and is not threatened to be made a party to the Proceeding in respect of which
indemnification, advancement of expenses or other action, is sought by a Covered
Person.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean a covered Person having acted in good faith and in
a manner such Covered Person reasonably believed to be in or not opposed to the
best interests of the corporation or, in the case of an employee benefit plan,
the best interests of the participants or beneficiaries of said plan, as the
case may be, and, with respect to any Proceeding which is criminal in nature,
having had no reasonable cause to believe such Covered Person's conduct was
unlawful.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and may include law firms or members
thereof that are regularly retained by the corporation but not by any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the corporation or Covered Person in an action to determine the Covered
Person's rights under this Article.
"Officer" means the chairman of the board, president, vice presidents,
treasurer, assistant treasurer(s), secretary, assistant secretary(ies) and such
other executive officers as are appointed by the board of directors of the
corporation and explicitly entitled to indemnification hereunder.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternative dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one
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initiated by the Covered Person, but including one initiated by the Covered
Person for the purpose of enforcing such Covered Person's rights under this
Article to the extent provided in Section 20 of this Article. "Proceeding" shall
not include any counterclaim brought by any Covered Person other than one
arising out of the same transaction or occurrence that is the subject matter of
the underlying claim.
Section 7. Right to Indemnification in General.
(a) Covered Persons. The corporation shall indemnify, and advance Expenses
to, each Covered Person who is, was or is threatened to be made a party or is
otherwise involved in any Proceeding, as provided in this Article and to the
fullest extent permitted by applicable law in effect on the date hereof and to
such greater extent as applicable law may hereafter from time to time permit.
The indemnification provisions in this Article shall be deemed to be a
contract between the corporation and each Covered Person who serves in any
Corporate Status at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any Proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a contract right may not be modified retroactively
without the consent of such Covered Person.
(b) Employees, Consultants and Agents. The corporation may, to the extent
authorized from time to time by the board of directors, grant indemnification
and the advancement of Expenses to any employee, consultant or agent of the
corporation to the fullest extent of the provisions of this Article with respect
to the indemnification and advancement of Expenses of Covered Persons.
Section 8. Proceedings Other Than Proceedings by or in the Right of the
Corporation. Each Covered Person shall be entitled to the rights of
indemnification provided in this Section 8 if, by reason of such Covered
Person's Corporate Status, such Covered Person is, or is threatened to be made,
a party to or is otherwise involved in any Proceeding, other than a Proceeding
by or in the right of the corporation. Such Covered Person shall be indemnified
against Expenses, judgments, penalties, fines and amounts paid in settlement,
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection with such Proceeding or any claim, issue or matter
therein, if such Covered Person acted in Good Faith.
Section 9. Proceedings by or in the Right of the Corporation. Each Covered
Person shall be entitled to the rights of indemnification provided in this
Section 9 if, by reason of such Covered Person's Corporate Status, such Covered
Person is, or is threatened to be made, a party to or is otherwise involved in
any Proceeding brought by or in the right of the corporation to procure a
judgment in its favor. Such Covered Person shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement, actually
and reasonably incurred by such Covered Person or on such Covered Person's
behalf in connection with such Proceeding or any claim, issue or matter therein,
if such Covered Person acted in Good Faith. Notwithstanding
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the foregoing, no such indemnification shall be made in respect of any claim,
issue or matter in such Proceeding as to which such Covered Person shall have
been adjudged to be liable to the corporation if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the corporation in such event if
and only to the extent that the Court which is considering the matter shall so
determine.
Section 10. Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Article, to the extent that a
Covered Person is, by reason of such Covered Person's Corporate Status, a party
to or is otherwise involved in and is successful, on the merits or otherwise, in
any Proceeding, such Covered Person shall be indemnified to the maximum extent
permitted by law, against all Expenses, judgments, penalties, fines, and amounts
paid in settlement, actually and reasonably incurred by such Covered Person or
on such Covered Person's behalf in connection therewith. If such Covered Person
is not wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the corporation shall indemnify such Covered Person to the maximum
extent permitted by law, against all Expenses, judgments, penalties, fines, and
amounts paid in settlement, actually and reasonably incurred by such Covered
Person or on such Covered Person's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 10 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 11. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Article, to the extent that a Covered Person is, by
reason of such Covered Person's Corporate Status, a witness in any Proceeding,
such Covered Person shall be indemnified against all Expenses actually and
reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection therewith.
Section 12. Advancement of Expenses. Notwithstanding any provision to the
contrary in this Article, the corporation shall advance all reasonable Expenses
which, by reason of a Covered Person's Corporate Status, were incurred by or on
behalf of such Covered Person in connection with any Proceeding, within twenty
(20) days after the receipt by the corporation of a statement or statements from
such Covered Person requesting such advance or advances, whether prior to or
after final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by the Covered Person and shall
include or be preceded or accompanied by an undertaking by or on behalf of the
Covered Person to repay any Expenses if such Covered Person shall be adjudged to
be not entitled to be indemnified against such Expenses. Any advance and
undertakings to repay made pursuant to this Section 12 shall be unsecured and
interest-free. Advancement of Expenses pursuant to this Section 12 shall not
require approval of the board of directors or the stockholders of the
corporation, or of any other person or body. The secretary of the corporation
shall promptly advise the Board in writing of the request for advancement of
Expenses, of the amount and other details of the advance and of the undertaking
to make repayment provided pursuant to this Section 12.
Section 13. Notification and Defense of Claim. Promptly after receipt by a
Covered
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Person of notice of the commencement of any Proceeding, such Covered Person
shall, if a claim is to be made against the corporation under this Article,
notify the corporation of the commencement of the Proceeding. The omission of
such notice will not relieve the corporation from any liability which it may
have to such Covered Person otherwise than under this Article. With respect to
any such Proceedings of which such Covered Person has provided notice to the
corporation:
(a) The corporation will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below, the corporation (jointly with any
other indemnifying party similarly notified) will be entitled to assume the
defense with counsel reasonably satisfactory to the Covered Person. After notice
from the corporation to the Covered Person of its election to assume the defense
of a suit, the corporation will not be liable to the Covered Person under this
Article for any legal or other expenses subsequently incurred by the Covered
Person in connection with the defense of the Proceeding other than reasonable
costs of investigation or as otherwise provided below.
The Covered Person shall have the right to employ his own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the corporation of its assumption of the defense shall be at the expense of the
Covered Person except as follows. The fees and expenses of counsel shall be at
the expense of the corporation if (i) the employment of counsel by the Covered
Person has been authorized by the corporation, (ii) the Covered Person shall
have concluded reasonably that there may be a conflict of interest between the
corporation and the Covered Person in the conduct of the defense of such action
and such conclusion is confirmed in writing by the corporation's outside counsel
regularly employed by it in connection with corporate matters, or (iii) the
corporation shall not in fact have employed counsel to assume the defense of
such Proceeding. The corporation shall be entitled to participate in, but shall
not be entitled to assume the defense of, any Proceeding brought by or in the
right of the corporation or as to which the Covered Person shall have made the
conclusion provided for in (ii) above and such conclusion shall have been so
confirmed by the corporation's said outside counsel.
(c) Notwithstanding any provision of this Article to the contrary, the
corporation shall not be liable to indemnify the Covered Person under this
Article for any amounts paid in settlement of any Proceeding effected without
its written consent. The corporation shall not settle any Proceeding or claim in
any manner which would impose any penalty, limitation or disqualification of the
Covered Person for any purpose without such Covered Person's written consent.
Neither the corporation nor the Covered Person will unreasonably withhold their
consent to any proposed settlement.
(d) If it is determined that the Covered Person is entitled to
indemnification other than as afforded under subparagraph (b) above, payment to
the Covered Person of the additional amounts for which the Covered Person is to
be indemnified shall be made within ten (l0) days after such determination.
Section 14. Procedures.
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(a) Method of Determination. A determination (as provided for by this
Article or if required by applicable law in the specific case) with respect to a
Covered Person's entitlement to indemnification shall be made either (a) by the
board of directors by a majority vote of a quorum consisting of Disinterested
directors, or (b) in the event that a quorum of the board of directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the board of directors, a copy of which shall be
delivered to the Covered Person seeking indemnification, or (c) by the vote of
the holders of a majority of the corporation's capital stock outstanding at the
time entitled to vote thereon.
(b) Initiating Request. A Covered Person who seeks indemnification under
this Article shall submit a Request for Indemnification, including such
documentation and information as is reasonably available to such Covered Person
and is reasonably necessary to determine whether and to what extent such Covered
Person is entitled to indemnification.
(c) Presumptions. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that the Covered Person is entitled to
indemnification under this Article.
(d) Burden of Proof. The person or entity opposing a Covered Person's claim
for indemnification shall have the burden of proof to overcome the presumption
described by Section 14(c) above in connection with the making by any person,
persons or entity of any determination contrary to that presumption.
(e) Effect of Other Proceedings. The termination of any proceeding or of
any claim, issue or matter therein, by judgment, order, settlement of
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Article) of itself
adversely affect the right of a Covered Person to indemnification or create a
presumption that a Covered Person did not act in Good Faith.
Section 15. Action by the Corporation. Any action, payment, advance
determination other than a determination made pursuant to Section 14,
authorization, requirement, grant of indemnification or other action taken by
the corporation pursuant to this Article shall be effected exclusively through
any Disinterested person so authorized by the board of directors of the
corporation, including the president or any vice president of the corporation.
Section l6. Non-Exclusivity. The rights to indemnification and to receive
advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which a Covered Person may at any time be
entitled under applicable law, the certificate of incorporation, these by-laws,
any agreement, a vote of stockholders, a resolution of the board of directors,
or otherwise. No amendment, alteration, rescission or replacement of this
Article or any provision hereof shall be effective as to a Covered Person with
respect to any action taken or omitted by such Covered Person in such Covered
Person's Corporate Status or with respect to any state of facts then or
previously existing or any Proceeding previously or thereafter brought or
threatened based in whole or to the extent based in part upon any such state of
facts existing
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prior to such amendment, alteration, rescission or replacement.
Section l7. Insurance. The corporation may maintain, at its expense, an
insurance policy or policies to protect itself and any Covered Person, officer,
employee or agent of the corporation or another enterprise against liability
arising out of this Article or otherwise, whether or not the corporation would
have the power to indemnify any such person against such liability under the
Delaware General Corporation Law.
Section l8. No Duplicative Payment. The corporation shall not be liable
under this Article to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that a Covered Person has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
Section 19. Expenses of Adjudication. In the event that any Covered Person
seeks a judicial adjudication, or an award in arbitration, to enforce such
Covered Person's rights under, or to recover damages for breach of, this
Article, the Covered Person shall be entitled to recover from the corporation,
and shall be indemnified by the corporation against, any and all expenses (of
the types described in the definition of Expenses in Section 6 actually and
reasonably incurred by such Covered Person in seeking such adjudication or
arbitration, but only if such Covered Person prevails therein. If it shall be
determined in such adjudication or arbitration that the Covered Person is
entitled to receive part but not all of the indemnification of expenses sought,
the expenses incurred by such Covered Person in connection with such
adjudication or arbitration shall be appropriately prorated.
Section 20. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Article (including without limitation, each portion of any Section of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid, is
conferred upon the board of directors by the certificate of incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal by-laws.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the board of directors, when such power
is conferred upon
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the board of directors by the certificate of incorporation, at any regular
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration, amendment, repeal or adoption of new by-laws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal by-laws
is conferred upon the board of directors by the certificate of incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal the by-laws.
18
Exhibit 4.2
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION
The undersigned (the "Purchaser") hereby offers and agrees to purchase from
OMEGA Orthodontics, Inc., a Delaware corporation (the "Company"), the dollar
principal amount of 15% Senior Notes ("Notes") due September 30, 1997 of the
Company indicated on the Signature Page at the end of this Agreement. Notes
subscribed for shall be purchased for 100% of the principal amount in cash in
the form of a personal check of the undersigned made payable to "OMEGA
Orthodontics, Inc.", delivered to the Company along with completed and executed
Signature Pages for OMEGA Orthodontics, Inc., the Subscription Agreement and a
completed and signed Investor Questionnaire. The minimum investment in the
Company is Fifty Thousand Dollars ($50,000.00).
2. ACKNOWLEDGEMENT
The Purchaser hereby acknowledges receipt of a copy of the Confidential
Private Placement Memorandum dated as of September 4, 1996 (the "Memorandum")
concerning the Company and offering of the Notes. Unless otherwise stated, every
capitalized term used herein will have the meaning for purposes hereof assigned
to such term in the Memorandum or the Notes.
3. ACCEPTANCE
The Purchaser understands that this Agreement represents one of a limited
number of subscriptions for the Notes of the Company being presented to
individuals or entities that comply with the requirements of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933 (the
"Securities Act"), by the Company. The Purchaser further understands and agrees
that this Agreement may be accepted or rejected by the Company in whole or in
part, in the sole and absolute discretion of the Company, and if accepted, the
Notes purchased pursuant hereto and the "Shares" (as defined below) will be
issued only in the name of the Purchaser. The Purchaser hereby acknowledges and
agrees that this Agreement and any documents submitted herewith shall survive
(i) changes in the Memorandum which are not material; (ii) death or disability
of the Purchaser; and (iii) the acceptance of this Agreement by the Company. The
Purchaser acknowledges that the Company is relying upon the representations and
warranties of the Purchaser set forth herein and in the accompanying Investor
Questionnaire and agrees to notify the Company immediately upon the occurrence
of any circumstance or event which could affect the accuracy or completeness of
such representations and warranties.
4. REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is relying solely upon the Memorandum, the Appendices
thereto, and independent investigations made by him or his representatives in
making his decision to purchase the Notes described herein. The Purchaser has
not been furnished any sales literature or offering other than the Memorandum
and the information referred to therein.
<PAGE>
(b) The Purchaser understands that the Notes and Shares have not been
registered under the Securities Act or any state securities acts, in reliance on
exemptions for private offerings under the Securities Act and such state acts.
(c) The Notes for which the Purchaser hereby subscribes and the Shares to
be issued to the Purchaser are being acquired solely for his own account, for
investment, and are not being purchased with a view to or for the resale,
distribution, subdivision or fractionalization thereof; he has no present plans
to enter into any such contract, undertaking, agreement or arrangement. In order
to induce the Company to issue and sell the Notes subscribed for hereby to the
Purchaser, it is agreed that the Company will have no obligation to recognize
the ownership, beneficial or otherwise, of such Notes and Shares by anyone but
the Purchaser.
(d) The Purchaser has received, completed and returned to the Company the
Investor Questionnaire relating to his general ability to bear the risks of an
investment in the Company and his suitability as an investor in a private
offering, and the Purchaser hereby affirms the correctness of his answers in
such Questionnaire.
(e) The Purchaser acknowledges and is aware that the Company has minimal
assets and operating history and that the Notes are speculative investments.
(f) The Purchaser acknowledges and is aware that there are substantial
restrictions on the transferability of the Notes and Shares; the Notes and
Shares will not be, and investors in the Company have no rights (other than to
the limited extent set forth below) to require that the Notes and Shares be,
registered under the Securities Act; there will be no public market for the
Notes and Shares; the Purchaser will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act with respect to the resale of the Notes and will be able to
avail himself of the provisions of such Rule 144 with respect to the resale of
the Shares only under the circumstances set forth thereunder; and accordingly,
that he may have to hold the Notes and Shares indefinitely and that it may not
be possible for him to liquidate his investment in the Company.
(g) The Purchaser (i) has adequate means of providing for his current needs
and possible personal contingencies, and he has no need for liquidity of his
investment in the Company; (ii) has a net worth sufficient to bear the risk of
losing his entire investment; (iii) can bear the economic risk of losing his
entire investment herein; and (iv) does not have an overall commitment to
non-readily marketable investments which is disproportionate to his net worth
and the investment subscribed for herein will not cause such overall commitment
to become excessive.
(h) If the Purchaser is an individual, he warrants that he is over
twenty-one (21) years of age; and if the Purchaser is a corporation, trust or
partnership the Purchaser warrants that it is authorized and otherwise duly
qualified to hold investments in the Company.
<PAGE>
5. INDEMNIFICATION
The Purchaser hereby indemnifies the Company and the Members of the Board
of Directors and the officers of the Company and all of their affiliates, agents
and controlling persons, and each of them, and agrees to hold them, and each of
them, harmless from and against any and all loss, damage, claim, liability or
expense (including reasonable attorneys' fees and expenses and costs of
investigation), which they or any of them may sustain or incur by reason of, or
in connection with any misrepresentation or breach of any warranty, agreement or
covenant made or undertaken in this Agreement, any Investor Questionnaire or
otherwise in connection with the sale or distribution by the Purchaser of the
Notes and Shares purchased by, or otherwise issued to, the Purchaser pursuant
hereto whether or not in violation of the Securities Act or other applicable
Federal or state law, provided, however, that such party or parties who may be
seeking indemnification hereunder were acting within the reasonable scope of
their authority and did not engage in gross negligence, wilful misconduct or bad
faith. The representations and warranties contained herein shall be binding upon
the Purchaser's heirs, executors, administrators, trustees, successors, and
assigns.
6. SHARES TO BE ISSUED PURSUANT TO NOTES
To induce the Purchaser to subscribe for Notes, the Company has agreed to
issue, for no additional consideration, the number of shares (the "Shares") of
Common Stock of the Company set forth on the face of the Note to be issued to
the Purchaser hereunder. Such Shares shall be subject to the terms and
conditions set forth in this Section 6.
A. Definitions
As used in this Section, the following terms have the respective meanings
set forth below:
"Business Day" shall mean any day that is not a Saturday, Sunday or a
federal holiday.
"Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the authorized Common Stock, par value $0.01 per
share, of the Company as constituted on the date hereof, and any capital stock
into which such Common Stock may hereafter be changed, and shall also include
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof.
"Fair Market Price" of a share of Common Stock means the closing price on
the day in question, or the immediately preceding Business Day if the day in
question is not a business day on the applicable national securities exchange
Nasdaq Stock Market system on which the Common Stock is included or listed or
if, on any day in question, the Common Stock shall not be listed on any national
securities exchange or quoted on the Nasdaq Stock Market, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if
<PAGE>
such quotation is not reported by the National Quotation Bureau, Inc.);
provided, however, that if the Common Stock is not traded in such manner that
the quotations referred to herein are available for the period required
hereunder, the Fair Market Price shall be determined in good faith by the Board
of Directors of the Company, or if such determination cannot be made, by a
nationally recognized independent investment banking firm selected by the Board
of Directors.
"Holder" shall mean the Purchaser, and any permitted transferees thereof of
all or part of the Shares.
"Initial Public Offering" shall mean the first firm commitment underwritten
public offering of Common Stock (and other securities exercisable for the
purchase of Common Stock) by the Company pursuant to an effective Registration
Statement.
"Other Shares" shall have the meaning ascribed to in Section 6(c)(1)(b)
hereof.
"Outstanding" when used with reference to Common Stock shall mean, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company, and shall include shares of Common Stock then issuable pursuant
to any other warrants, options or other purchase rights, however denominated.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock held by the Company in its treasury.
"Registrable Shares" shall have the meaning ascribed to it in Section
6(c)(1) hereof.
"Registration Expenses" shall mean expenses relating to compliance by the
Company with its obligations under Section 6(c)(4) hereof, including all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state blue sky fees and expenses, and
the expense of any special audits and other expert reports incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of personal counsel selected by the
Holder.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successor forms, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another entity), including
the prospectus, amendments and supplements to such registration statement or
prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated or deemed to be incorporated by reference in such
registration statement.
<PAGE>
"Restricted Shares" shall mean, at any time, the Holder's Shares, and any
securities received in respect thereof, which are at such time held by the
Holder and which theretofore have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
complementary rule thereto (including without limitation Rule 144A).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning ascribed to it above in this Section 6.
B. Sale or Transfer of Shares; Legend
(a) The Shares and the Registerable Shares and shares issued in respect of
the Shares or the Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Shares and the Registrable Shares,
and shares issued in respect of the Shares and the Registrable Shares, shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred or pledged unless and until such shares are
registered under such Act or an opinion of counsel reasonably satisfactory
to the Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
C. Registration Rights
1. Incidental Registration Rights. (a) If the Company at any time proposes
for any reason to register any of its securities under the Act (other than in
connection with its Initial Public Offering or pursuant to a registration
statement on Forms S-4, S-8 or similar or successor or another form which is not
available for registering Registrable Securities for sale to the public), it
shall each such time promptly give written notice to all Holders of Registrable
Securities of its intention so to do, and, upon the written request, given
within 10 days after receipt of any such notice, of such Holder to register any
Registrable Securities, which request shall specify the number of Registrable
Securities intended to be sold or disposed of by such Holders and shall state
the intended method of disposition of such Registrable Securities by such
Holders, the Company shall use its best efforts to cause all such Registrable
Securities to
<PAGE>
be registered under the Act as required to permit the sale or other disposition
(in accordance with the intended methods thereof, as aforesaid) by such Holders.
Notwithstanding the foregoing, the Company shall have the right to withdraw such
registration statement, if so required by prudent business judgment, provided it
shall reimburse the persons who indicated their intention to include Registrable
Securities therein for the out-of-pocket expenses reasonably incurred by such
persons in connection therewith. "Registrable Securities", for purposes of this
Section 6(c), means (i) the Shares and (ii) any shares of Common Stock issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for, or in replacement of, any of such Shares.
(b) In the event that the proposed registration by the Company is, in whole
or in part, an underwritten public offering of securities of the Company (other
than the Initial Public Offering as to which the Holder shall have no
registration rights under this Section 6(c)), any request pursuant to this
Section 6 to register may specify that the Registrable Securities are to be
included in the underwriting (i) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Registrable Securities are
being sold through underwriters under such registration; provided, however, that
if the managing underwriter determines and advises in writing that the inclusion
of all Registrable Securities proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Registrable Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of Registrable Securities and Other Shares shall be
reduced pro rata among the holders of Registrable Securities and Other Shares,
as necessary.
2. Demand Registration. At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Holder holding in the aggregate at least 25% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Holders. Such Holders shall have the right by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Holders may request in such notice of Election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
3. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 6(c) to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective;
<PAGE>
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for at least nine
months and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement;
(c) furnish to each seller such number of copies of a summary prospectus or
other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the public sale or other disposition
of such Registrable Securities;
(d) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each such seller shall reasonably request (provided,
however, that the Company shall not be required to consent to general service of
process for all purposes or qualify to do business in any jurisdiction where it
is not then qualified) and do any and all other acts or things which may be
reasonably necessary or advisable to enable such seller to consummate the public
sale or other disposition in such jurisdictions of such securities; and
(e) notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto covered by
such registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (b) of this ss.8.3, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an 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 in the light of the circumstances then existing.
4. Registration Expenses. All Registration Expenses incurred in complying
with this Section 6(c) shall be paid for by the Company.
5. Indemnification. In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Section 6(c) or other
registration or qualification thereof pursuant to Section 6(c)(3)(d) hereof, the
Company shall enter into an indemnity agreement with the sellers of Registrable
Securities in customary form relating thereto.
6. Assignment. The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may be assigned by a Holder to any
transferee or assignee of Registrable Securities upon the transfer or assignment
of all Registrable Securities held by such Holder or a minimum of 20% of shares
of such Registrable Securities; provided that the Company is notified in writing
of such transfer, the proposed transferee or assignee agrees to be bound by the
provisions of this Subscription Agreement.
<PAGE>
7. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior understanding and agreements between them respecting
the subject matter of this Agreement.
8. GOVERNING LAW
This Agreement shall be governed, construed, and interpreted in all
respects, in accordance with the internal laws of the State of California
applicable to contracts made and to be performed wholly therein, except to the
extent that by its terms the General Corporation Law of the State of Delaware
shall, by reason of the status of the Company as a Delaware business
corporation, control, and the Purchaser hereby submits to jurisdiction and venue
of the courts located in the State of California.
9. NOTICES
All notices, consents, requests, demands, offers, reports and other
communications required or permitted shall be deemed to be given when personally
delivered to the party entitled thereto, or when sent by United States mail,
certified or registered, in a sealed envelope, with postage prepaid, or by
receipted, commercial overnight courier addressed if to the Purchaser at the
respective location set below his name, and if to the Company to OMEGA
Orthodontics, Inc., 3621 Silver Spur Lane, Acton, California 93510, Attention:
Robert J. Schulhof, President.
IN WITNESS WHEREOF, the Purchaser has executed or has caused to be executed
this Subscription Agreement by execution of the following signature page as of
the date set forth therein.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR INDIVIDUAL
AND JOINT TENANT INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Printed Name of Subscriber
Signature of Subscriber
Address of Subscriber:
Number and Street
City-State-Zip Code
Printed Name of Joint Tenant, if applicable*
-------------------
Signature of Joint Tenant, if applicable Social Security No.
- ------------------------
* All joint tenants, including married couples, must execute this signature
page and check the following as appropriate indicating nature of tenancy:
(a)_____ Tenants in common; (b) _____ Joint tenants with right of survivorship;
(c) _____ Community property.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR CORPORATE INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: ______ (in Multiples of $5,000/minimum
investment: $50,000)
Name of corporation (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
-----------------------------------
Taxpayer Identification No.:
-------------
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR LIMITED LIABILITY COMPANY INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of limited liability company (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
-------------------------------
Taxpayer Identification No.:
---------
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR TRUST INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of trust (please print or type)
Name of trustee (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
----------------------------------------
Trustee's signature
BY:
-----------------------------------------
Additional trustee's signature
(if required by Trust Agreement)
Taxpayer Identification No. or
Social Security No.:
-----------------------
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PARTNERSHIP INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of partnership (please print or type)
Name of general partner
ADDRESS:
Number and Street
City-State-Zip Code
BY:
-----------------------------------
Authorized signature of general partner
Print name of signer and title of signer's office
(or other capacity, as applicable)
Taxpayer Identification No:
------------------------
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Approved and accepted as of the ___ day of _________, 1996
OMEGA ORTHODONTICS, INC.
By
------------------------------
Robert J. Schulhof, President
Exhibit 4.3
15% SENIOR
PROMISSORY NOTE
LENDER:
ADDRESS:
BORROWER: OMEGA ORTHODONTICS, INC.
DATE: September , 1996
PRINCIPAL AMOUNT:$50,000.00
INTEREST RATE: 15% per annum, fixed
PAYMENT TERMS: Principal - On the Maturity Date, subject to earlier prepayment
Interest - Monthly and on Maturity Date or earlier prepayment
MATURITY DATE: September 30, 1997
COMMON STOCK
TO BE ISSUED: 10,000 SHARES
This is one of a series of notes of like tenor and term in the aggregate
principal amount of up to FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS (the
"Notes") issued and purchased in accordance with or as contemplated by that
certain Confidential Private Placement Memorandum - OMEGA Orthodontics, Inc.,
dated as of September 4, 1996, as the same may be amended or supplemented from
time to time (collectively, the "Placement Memorandum") and the Subscription
Agreement for this Note. All capitalized terms not specifically defined herein
shall have the same effect as in the Memorandum or the Subscription Agreement,
as applicable.
The undersigned Borrower promises to pay to lender whose name and address is set
forth above (hereinafter "Lender", which term shall include its successors and
assigns) or order, in lawful money of the United States, at the office of the
Borrower set forth in the Memorandum or at such other address the Lender shall
designate in written notice to the Borrower, the Principal Amount set forth
above with interest thereon or on such part thereof as may have been from time
to time advanced and remain outstanding at the Interest Rate hereinabove
specified. The entire unpaid Principal balance with interest then outstanding
shall be due and payable in full on September 30, 1997 (the "Maturity Date").
Interest hereunder shall accrue in arrears, shall be payable monthly on the
first day of each month commencing November 1, 1996, and shall be computed on a
360 day
<PAGE>
basis (i.e., interest for each day during which any of the principal balance is
outstanding shall be computed at the Interest Rate hereinabove specified divided
by 360). Payments shall be applied, in order, to costs of collection, late
charges, interest and then Principal.
1. Mandatory Prepayment. The Borrower intends to use the proceeds of the sale of
the Notes to pay for the legal, accounting and printing expenses the Borrower
expects to incur in preparing and consummating an initial public offering
("IPO") of Common Stock and Redeemable Common Stock Purchase Warrants, as
reflected in the Memorandum. Within five days after consummation of the IPO, if
it is consummated, the Borrower shall prepay the entire Principal Amount of this
Note (and the other Notes), together with any accrued but unpaid interest
thereon.
2. Acceleration/Events of Default. At the option of Lender, the entire unpaid
Principal balance hereunder with interest then outstanding shall become
immediately due and payable upon the occurrence of any of the following events
of default (hereinafter "Events of Default") which are not cured in accordance
with the provisions of Section 3: (i) failure to pay principal when due on this
Note; (ii) failure to pay any interest on this Note 30 days after payment is
due; (iii) failure to perform any other covenant of the Borrower under this
Note, and such failure continues for 60 days after written notice by the holder;
and (iv) the making of an assignment for the benefit of creditors, trust
mortgage or composition with creditors or other arrangement of similar import
by, or the commencement of any proceedings under any bankruptcy or insolvency
Law, now or hereafter enacted by or against Borrower, or any endorser.
If an Event of Default shall occur and be continuing, other than an event
of bankruptcy or insolvency of the Company, the holders of at least 50% of the
principal amount of the outstanding Notes may accelerate maturity of all Notes
upon 10 business days after notice of such acceleration is received by the
Company. If an Event of Default shall occur and be continuing which is a
bankruptcy or insolvency of the Company, the maturity of all Notes shall
immediately accelerate without any act on the part of any holder. After
acceleration upon the Event of Default, but before a judgment or decree based on
acceleration, the holders of more than 50% in an aggregate principal amount of
outstanding Notes may rescind and annul such declaration if, among other things,
all Events of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Notes.
No holder of any Note will have any right to institute any proceeding with
respect to such holder's Note or any remedy thereunder, unless the holders of at
least 50% in an aggregate principal amount of the outstanding Notes shall have
made written demand upon the Company for payment for the same continuing Events
of Default.
3. Borrower's Right to Cure. Notwithstanding the foregoing, Borrower shall at
minimum have the right: (1) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the event of default; and (2) to cure nonmonetary
defaults hereunder or under any such instrument, document or undertaking within
30 calendar days after the event of default, in which event, this Note and the
<PAGE>
loan evidenced hereby shall be reinstated. The time periods provided herein for
cure shall be concurrent with and not consecutive to any other grace periods
which may be provided in or with respect to any obligation having the benefit of
this provision.
4. Voluntary Prepayment. Borrower may prepay this Note in whole or in part at
any time without penalty or premium, upon written notice to Lender.
5. Common Stock Rights. As and for additional consideration to the Lender in
connection with the issuance and purchase of this Note, the Borrower hereby
grants to the Lender the right to receive, for no additional payment, 10,000
shares (the "Shares") of the Common Stock, par value $.01 per share, of the
Borrower. Certificates for the Shares shall be issued in the name of and
delivered to the Holder upon the execution and delivery of this Note. The Shares
shall be held subject to the provisions of, and the Holder of the Shares shall
be entitled to the benefits under, the Subscription Agreement for this Note.
6. Expenses. Borrower agrees to pay all expenses including reasonable attorney's
fees, which Lender may incur in effecting collection of this Note, upon default
or at maturity.
7. Delays. Lender shall not, by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder unless such waiver be in
writing and signed by Lender. A delay, omission or waiver on one occasion shall
not be deemed a waiver or bar on any future occasion of the same or any other
right.
8. Certain Waivers. Borrower hereby (1) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of nonmonetary default; (2)
waives all suretyship defenses; and (3) assents to any extension or postponement
of the time of payment or any other indulgence or forbearance and to the
addition or release of any other party primarily or secondarily liable.
9. Remedies. Borrower hereby acknowledges and agrees that no remedy of Lender
under this Note is intended to be exclusive of any other remedy, and each and
every remedy given hereunder or now hereafter existing at law or in equity by
statute or other provision of law may be exercised in any order or manner
without waiving rights and may be exercised cumulatively.
10. Notices. Notices to Borrower shall be deemed given when delivered in hand to
Borrower, or one (1) day after being sent by receipted commercial, overnight
courier or five (5) days after being mailed by certified mail, postage prepaid,
return receipt requested, to the Borrower the address described above or at such
other address of which the Borrower shall have notified the Lender in writing.
11. Governing Law. This Note shall be deemed to be a California instrument, and
all rights and obligations hereunder shall be governed by the laws of the State
of California.
<PAGE>
This instrument has been duly executed by an officer of Borrower duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
_____________________ By:
Robert J. Schulhof, President
Exhibit 4.4
OH&S DRAFT
5/7/97
[Form of Warrant Agreement Subject to Additional Review]
================================================================================
OMEGA ORTHODONTICS, INC.
AND
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
------------
WARRANT AGREEMENT
Dated as of ___________ __, 1997
================================================================================
<PAGE>
AGREEMENT, dated this ____ day of __________, 1997, by and
among OMEGA ORTHODONTICS, INC., a Delaware corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
--------------------
WHEREAS, in connection with (i) the offering to the public of
up to 1,800,000 shares of Common Stock (as defined in Section 1) and 1,800,000
redeemable common stock purchase warrants (the "Warrants"), each warrant
entitling the holder thereof to purchase one additional share of Common Stock,
(ii) the over-allotment option to purchase up to an additional 270,000 shares of
Common Stock and/or 270,000 Warrants (the "Over-allotment Option"), and (iii)
the sale to National Securities Corporation ("National" or the "Representative")
of warrants (the "Representative's Warrants") to purchase up to 180,000 shares
of Common Stock and/or 180,000 Warrants, the Company will issue up to 2,250,000
Warrants (subject to increase as provided in the Representative's Warrant
Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of
<PAGE>
the Company, National, the holders of certificates representing the Warrants and
the Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the right
to participate in the voting and in the distribution of earnings and assets of
the Company without limit as to amount or percentage.
(c) "Commission" shall mean the Securities and Exchange
Commission.
(d) "Corporate Office shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its business in New
York, New York, shall be administered, which office is located on the date
hereof at 2 Broadway.
(e) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(f) "Exercise Date" shall mean, subject to the provisions
of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, and (ii) payment in cash or by official
bank or certified check made payable to the Warrant Agent for the account of the
Company, of the amount in lawful money of the United States of America equal to
the applicable Purchase Price (as hereinafter defined) in good funds.
(g) "Initial Warrant Exercise Date" shall mean
_____________ __, 1997 [6 months from the effective date of the Registration
Statement].
2
<PAGE>
(h) "Initial Warrant Redemption Date" shall mean
_______________ __, 1998 [18 months from the effective date of the Registration
Statement].
(i) "NASD" shall mean the National Association of
Securities Dealers, Inc. (j) "Nasdaq" shall mean the Nasdaq Stock Market.
(k) "Purchase Price" shall mean, subject to modification
and adjustment as provided in Section 8, $_____ [110% of the initial public
offering price of the Common Stock] and further subject to the Company's right,
in its sole discretion, to decrease the Purchase Price for a period of not less
than 30 days on not less than 30 days' prior written notice to the Registered
Holders and National. (l) "Redemption Date" shall mean the date (which may not
occur before the Initial Warrant Redemption Date) fixed for the redemption of
the Warrants in accordance with the terms hereof.
(m) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.10 per Warrant, subject to adjustment from time
to time pursuant to the provisions of Section 9 hereof.
(n) "Registered Holder" shall mean the person in whose
name any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(o) "Transfer Agent" shall mean Continental Stock Transfer
and Trust Company, or its authorized successor.
(p) "Underwriting Agreement" shall mean the underwriting
agreement dated ______________ __, 1997 [the date of the Prospectus] between the
Company and the several
3
<PAGE>
underwriters listed therein relating to the purchase for resale to the public of
the 1,800,000 shares of Common Stock and 1,800,000 Warrants.
(q) "Representative's Warrant Agreement" shall mean the
agreement dated as of _______________ __, 1997 [the date of the Prospectus]
between the Company and National relating to and governing the terms and
provisions of the Representative's Warrants.
(r) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(s) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30
p.m. (New York time), on ______________ __, 2002 [60 months after the date of
the Prospectus], or the Redemption Date as defined herein, whichever date is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:30 p.m. (New York time)
on the next following day which, in the State of New York, is not a holiday or a
day on which banks are authorized to close. Upon five business days' prior
written notice to the Registered Holders, the Company shall have the right to
extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase at the
Purchase Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one share of Common Stock upon the exercise thereof in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
(subject to modification and
4
<PAGE>
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing all or a portion of 180,000
Warrants to purchase up to an aggregate of 180,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8 hereof and in
the Representative's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary.
(d) From time to time, up to the Warrant Expiration Date
or the Redemption Date, whichever date is earlier, the Warrant Agent shall
countersign and deliver Warrant Certificates in required denominations of one or
whole number multiples thereof to the person entitled thereto in connection with
any transfer or exchange permitted under this Agreement. Except as provided
herein, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder and those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants held by the
exercising Registered Holder, (ii) Warrant Certificates issued upon any transfer
or exchange of Warrants, (iii) Warrant Certificates issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7,
(iv) Warrant Certificates issued pursuant to the Representative's Warrant
Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
5
<PAGE>
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, Chief Executive Officer, President or
any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered
6
<PAGE>
by the Warrant Agent to the Registered Holder promptly and without further
action by the Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder, upon exercise thereof,
as of the close of business on the Exercise Date. If Warrants in denominations
other than whole number multiples thereof shall be exercised at one time by the
same Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of full shares of Common Stock issuable upon such exercise. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, if one or more Warrants have been exercised, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any one or more Warrants, the Warrant Agent shall promptly notify
the Company in writing of such fact and of the number of securities delivered
upon such exercise and, subject to subsection (b) below, shall cause all
payments of an amount in cash or by check made payable to the order of the
Company, equal to the Purchase Price, to be deposited promptly in the Company's
bank account.
7
<PAGE>
(b) At any time upon the exercise of any Warrants after
one year and one day from the date hereof, the Warrant Agent shall, on a daily
basis, within two business days after such exercise, notify National of the
exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price, but in no event
later than five business days after the last day of the calendar week in which
such funds were tendered), remit to National an amount equal to five percent
(5%) of the Purchase Price of such Warrants then being exercised unless National
shall have notified the Warrant Agent that the payment of such amount with
respect to such Warrant is violative of the General Rules and Regulations
promulgated under the Exchange Act, or the rules and regulations of the NASD or
applicable state securities or "blue sky" laws, or the Warrants are those
underlying the Representative's Warrants in which event, the Warrant Agent shall
have to pay such amount to the Company; provided, that the Warrant Agent shall
not be obligated to pay any amounts pursuant to this Section 4(b) during any
week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregates $1,000, and provided further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly.
Notwithstanding the foregoing, National shall be entitled to receive the
commission contemplated by this Section 4(b) as Warrant solicitation agent only
if: (i) National has provided actual services in connection with the
solicitation of the exercise of a Warrant by a Registered Holder and (ii) the
Registered Holder exercising a Warrant affirmatively designates in writing on
the exercise form on the reverse side of the Warrant Certificate that the
exercise of such Registered Holder's Warrant was solicited by National.
(c) The Company shall not be required to issue fractional
shares on the exercise of Warrants. Warrants may only be exercised in such
multiples as are required to permit
8
<PAGE>
the issuance by the Company of one or more whole shares. If one or more Warrants
shall be presented for exercise in full at the same time by the same Registered
Holder, the number of whole shares which shall be issuable upon such exercise
thereof shall be computed on the basis of the aggregate number of shares
purchasable on exercise of the Warrants so presented. If any fraction of a share
would, except for the provisions provided herein, be issuable on the exercise of
any Warrant (or specified portion thereof), the Company shall pay an amount in
cash equal to such fraction multiplied by the then current market value of a
share of Common Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted
trading privileges on a national securities exchange, or is traded on Nasdaq,
the current market value of a share of Common Stock shall be the closing sale
price of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on whichever of such
exchanges or Nasdaq had the highest average daily trading volume for the Common
Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed, quoted or
reported for trading on Nasdaq, but is traded in the over-the-counter market,
the current market value of a share of Common Stock shall be the average of the
last reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of exercise of
the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted
trading privileges on any national securities exchange, or listed, quoted or
reported for trading on Nasdaq, and bid and asked prices of the Common Stock are
not reported by the National Quotation Bureau, Inc.,
9
<PAGE>
the current market value of a share of Common Stock shall be an amount, not less
than the book value thereof as of the end of the most recently completed fiscal
quarter of the Company ending prior to the date of exercise, determined by the
members of the Board of Directors of the Company exercising good faith and using
customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each securities exchange,
if any, on which the other shares of outstanding Common Stock of the Company are
then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will file a registration statement under the federal
securities laws or a post-effective amendment, use its best efforts to cause the
same to become effective and to keep such registration statement current while
any of the Warrants are outstanding and deliver a prospectus which complies with
Section 10(a)(3) of the Act, to the Registered Holder exercising the Warrant
(except, if in the opinion of counsel to the Company, such registration is not
required under the federal securities law or if the Company receives a letter
10
<PAGE>
from the staff of the Commission stating that it would not take any enforcement
action if such registration is not effected). The Company will use its best
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably authorized as
the Transfer Agent to requisition from time to time certificates representing
shares of Common Stock or other securities required upon exercise of the
Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the
11
<PAGE>
Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant
12
<PAGE>
Certificate as the absolute owner thereof and of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon made by
anyone other than a duly authorized officer of the Company or the Warrant Agent)
for all purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or the Warrant Agent that a new Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof and prior
to the Warrant Expiration Date, issue or sell any shares of Common Stock for a
consideration per share less than the Purchase Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price for the Warrants
13
<PAGE>
(whether or not the same shall be issued and outstanding) in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent to the nearest cent) determined by dividing (i)
the sum of (a) the total number of shares of Common Stock outstanding
immediately prior to such Change of Shares, multiplied by the Purchase Price in
effect immediately prior to such Change of Shares and (b) the consideration, if
any, received by the Company upon such sale, issuance, subdivision or
combination, by (ii) the total number of shares of Common Stock outstanding
immediately after such Change of Shares; provided, however, that in no event
shall the Purchase Price be adjusted pursuant to this computation to an amount
in excess of the Purchase Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
14
<PAGE>
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed to
have been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company, using
customary valuation methods and on the basis of prevailing market values for
similar property or services.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to
15
<PAGE>
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(b) Upon each adjustment of the Purchase Price pursuant to
this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Sections
8(a) and 8(b) and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such
16
<PAGE>
options, rights or warrants at the time of issuance, plus the consideration, if
any, received by the Company for such options, rights or warrants; provided,
however, that upon the expiration or other termination of such options, rights
or warrants, if any thereof shall not have been exercised, the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(A) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which options, warrants and/or rights
shall have expired, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be
17
<PAGE>
issued and outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon conversion or exchange of those convertible
or exchangeable securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this Section 8(c), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(c) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary of the Company in which merger the
Company is the continuing corporation) and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination) or in case of any sale or
18
<PAGE>
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant Agent
a statement signed by its Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8(a), (b) and (c). The above provisions of
this Section 8(d) shall similarly apply to successive reclassifications and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
19
<PAGE>
(f) After each adjustment of the Purchase Price pursuant
to this Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(g) No adjustment of the Purchase Price shall be made as a
result of or in connection with (A) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements and convertible
or exchangeable securities outstanding or in effect on the date hereof and on
the terms described in the final prospectus relating to the public offering
contemplated by the Underwriting Agreement; or (B) the issuance or sale of
shares of Common Stock if the amount of said adjustment shall be less than $.10,
provided, however, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.10. In addition,
Registered
20
<PAGE>
Holders shall not be entitled to cash dividends paid by the Company prior to the
exercise of any Warrant or Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may, on 30 days' prior written notice, redeem all the Warrants at ten
cents ($.10) per Warrant, provided, however, that before any such call for
redemption of Warrants can take place, the average closing bid price for the
Common Stock as reported by the Nasdaq SmallCap Market, if the Common Stock is
then traded on Nasdaq SmallCap Market, (or the closing sale price, if the Common
Stock is then traded on a national securities exchange) shall have equalled or
exceeded $______ [200% of the initial public offering price per share of Common
Stock] per share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date on
which the notice contemplated by (b) and (c) below is given (subject to
adjustment in the event of any stock splits or other similar events as provided
in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem
all of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to National a
similar notice telephonically and confirmed in writing
21
<PAGE>
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the Redemption Date, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificate shall be delivered and the redemption price shall be
paid, (iv) if National is engaged as a Warrant solicitation agent, that National
shall receive the commission contemplated by Section 4(b) hereof, and (v) that
the right to exercise the Warrant shall terminate at 5:30 p.m. (New York time)
on the business day immediately preceding the date fixed for redemption. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at
5:30 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
(e) The Company shall indemnify National and each person,
if any, who controls National within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from the
registration statement or prospectus referred to in Section 5(b) hereof to the
same extent and with
22
<PAGE>
the same effect (including the provisions regarding contribution) as the
provisions pursuant to which the Company has agreed to indemnify National
contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the
Company shall furnish to National (i) an opinion of counsel to the Company,
dated such date and addressed to National, and (ii) a "cold comfort" letter
dated such date addressed to National, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and National, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of Warrant Certificates to make or cause to
be made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine
23
<PAGE>
whether any fact exists which may require any such adjustments, or with respect
to the nature or extent of any such adjustments, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence, bad faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for National) and
shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, President or any Vice President (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and save it harmless from and against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done or
24
<PAGE>
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 15 days after it
has been notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file
25
<PAGE>
notice thereof with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Registered Holder of each Warrant
Certificate.
(g) Any corporation into which the Warrant Agent or any
new warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates,
and any of its or their officers or directors, may buy and hold or sell Warrants
or other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effect as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests
26
<PAGE>
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders representing not less than
66-2/3% of the Warrants then outstanding; provided, further, that no change in
the number or nature of the securities purchasable upon the exercise of any
Warrant, or to increase the Purchase Price therefor or to accelerate the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are presently specifically prescribed by this Agreement as originally
executed. In addition, this Agreement may not be modified, amended or
supplemented without the prior written consent of National, other than to cure
any ambiguity or to correct any provision which is inconsistent with any other
provision of this Agreement or to make any such change that is necessary or
desirable and which shall not adversely affect the interests of National and
except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company at 3621 Silver Spur Lane, Acton, California 93510, Attention:
Robert Schulhof, Chief Executive Officer, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant
to this Agreement shall also be delivered to National Securities Corporation,
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-1100,
27
<PAGE>
Attention: General Counsel, or at such other address as may have been furnished
to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
[SEAL]
OMEGA ORTHODONTICS, INC.
By:
-----------------------------
Name:
Title:
Attest:
By:
-------------------------
Name:
Title:
CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY,
As Warrant Agent
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
No. W VOID AFTER _________, 2002
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
OMEGA ORTHODONTICS, INC.
CUSIP ______
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of Omega Orthodontics, Inc., a Delaware corporation (the "Company"), at
any time between , 1997 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer and Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $_____, [110% of the initial public offering price of the Common
Stock] subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Warrant Agent
for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated , 1997 [date
of the Prospectus], between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional interests will be issued. In the case
of the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
<PAGE>
The term "Expiration Date" shall mean 5:30 p.m. (New York time)
on the date which is fifty-four (54) months after the Initial Warrant Exercise
Date. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:30 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant
may be redeemed at the option of the Company, at a redemption price of $0.10 per
Warrant, at any time commencing after ______________, 1998 [18 months after the
effective date of the Registration Statement], provided that the average closing
bid price for the Common Stock as reported by the Nasdaq SmallCap Market (or the
closing sale price, if the Common Stock is then traded on a national securities
exchange), shall have equalled or exceeded $_________ [200% of the initial
public offering price per share of Common Stock] per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the Notice of Redemption, as defined below
(subject to adjustment in the event of any stock splits or other similar
events). Notice of redemption (the "Notice of Redemption") shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants except
to receive the $.01 per Warrant upon surrender of this Warrant Certificate.
A-2
<PAGE>
Under certain circumstances, National Securities Corporation may
be entitled to receive an aggregate of five percent (5%) of the Purchase Price
of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:
OMEGA ORTHODONTICS, INC.
[SEAL]
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By: -------------------------------
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
-----------------
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ____________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
------------------
------------------
------------------
(please print or type name and address)
and be delivered to
------------------
------------------
------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
National Securities Corporation. [ ]
2. The exercise of this Warrant was solicited by
---------------------. [ ]
3. The exercise of this Warrant was not
solicited. [ ]
Dated: X
---------------- --------------------------------
--------------------------------
--------------------------------
Address
--------------------------------
Social Security or Taxpayer
Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
A-5
<PAGE>
ASSIGNMENT
----------
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________ , hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
------------------
------------------
------------------
------------------
(please print or type name and address)
_______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ___________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: X
------------------ -----------------------------
Signature Guaranteed
-----------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND 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 TO S.E.C. RULE 17Ad-15.
A-6
OHS DRAFT
5/7/97
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
OMEGA ORTHODONTICS, INC.
AND
NATIONAL SECURITIES CORPORATION
---------------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ________, 1997
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997
between OMEGA ORTHODONTICS, INC., a Delaware corporation (the "Company"), and
NATIONAL SECURITIES CORPORATION (hereinafter referred to variously as the
"Holder" or the "Representative").
W I T N E S S E T H:
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WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate 180,000 shares of Common
Stock, $.01 par value, of the Company and/or 180,000 redeemable common stock
purchase warrants of the Company ("Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 1,800,000 shares of Common Stock and 1,800,000 Redeemable Warrants (the
"Public Warrants") at a public offering price of $____ per share of Common Stock
and $.10 per Public Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
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NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate eighteen dollars ($18.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _______, 1998 [one year from the
effective date of the Registration Statement], until 5:30 P.M., New York time,
on _______, 2002 [five years from the effective date of the Registration
Statement], up to an aggregate of 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $____ per share of Common Stock [120% of the
initial public offering price per share] and $____ per Redeemable Warrant [120%
of the initial public offering price per Redeemable Warrant], subject to the
terms and conditions of this Agreement. One Redeemable Warrant is exercisable to
purchase one additional share of Common Stock at an initial exercise price of
$_____ [110% of the initial public offering price per share] from _______, 1998
[one year from the effective date of the registration statement] until 5:30 p.m.
New York time on _____, 2002 [five years from the effective date of the
registration statement], at which time the Redeemable Warrants shall expire.
Except as set forth herein, the shares of Common Stock and the Redeemable
Warrants issuable upon exercise of the Warrants are in all respects identical to
the shares of Common Stock and the Public Warrants being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. The shares of Common Stock and the Redeemable
Warrants issuable upon exercise of the Warrants are sometimes hereinafter
referred to collectively as the "Securities."
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2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share of Common Stock and Redeemable Warrant set forth in
Section 6 hereof payable by certified or official bank check in New York
Clearing House funds, subject to adjustment as provided in Section 8 hereof.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock and/or Redeemable Warrants
purchased at the Company's principal executive offices in New York (presently
located at 3621 Silver Spur Lane, Acton, California 93510) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased and a
certificate or certificates for the Redeemable Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock and Redeemable Warrants underlying the Warrants). In
the event the Company redeems all of the Public Warrants (other than the
Redeemable Warrants underlying the Warrants), then the Warrants may only be
exercised if such exercise is accompanied by the simultaneous exercise of the
Redeemable Warrant(s) underlying the Warrants being so exercised. Warrants may
be exercised to purchase all or part of the shares of Common Stock together with
an equal or unequal number of the Redeemable Warrants represented thereby.
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In the case of the purchase of less than all the shares of Common Stock and/or
Redeemable Warrants purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock and/or Redeemable Warrants purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares of
Common Stock in respect of which the Warrants are exercised and (b) a fraction,
the numerator of which shall be number of shares of Common Stock in respect of
which the Warrants are exercised multiplied by the Exercise Price and the
denominator of which shall be the Market Price (as defined in Section 3.3
hereof) of the Common Stock. The number of Redeemable Warrants to be issued
pursuant to this Section 3.2 shall be equal to the difference between (a) the
number of Redeemable Warrants in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of Redeemable
Warrants in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date on which the form of election attached hereto is deemed to have been sent
to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the
average of
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the Market Prices for each of the five trading days preceding the Notice Date,
whichever of (i) or (ii) is greater.
3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) when referring to the
Common Stock, the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), or, if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted by Nasdaq, the average closing bid
price as furnished by the National Association of Securities Dealers, Inc.
("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith (using customary valuation methods) by resolution of the members
of the Board of Directors of the Company, based on the best information
available to it or (ii) when referring to a Redeemable Warrant, the last
reported sales price, or, in the case no such reported sale takes place on such
day, the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Redeemable Warrants are listed or admitted to trading or by Nasdaq,
or, if the Redeemable Warrants are not listed or admitted to trading on any
national securities exchange or quoted by Nasdaq, the average closing bid price
as furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Redeemable Warrants are not quoted
on Nasdaq or are no longer outstanding, the Market Price of a Redeemable Warrant
shall equal the difference between the Market Price of the Common Stock and the
Exercise Price of the Redeemable Warrant.
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4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or
Redeemable Warrants and/or other securities, properties or rights underlying
such Warrants and, upon the exercise of the Redeemable Warrants, the issuance of
certificates for shares of Common Stock and/or other securities, properties or
rights underlying such Redeemable Warrants shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or the
Redeemable Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and Redeemable Warrants, and the shares of Common Stock
underlying each Redeemable Warrant (and/or other securities,
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property or rights issuable upon exercise of the Warrants) shall be dated as of
the Notice Date (regardless of when executed or delivered) and dividend bearing
securities so issued shall accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ [120% of the initial public offering price] per share of Common Stock
and $_____ per Redeemable Warrant [120% of the initial public offering price per
Public Warrant]. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 8 hereof. Any transfer of a
Warrant shall constitute an automatic transfer and assignment of the
registration rights set forth in Section 7 hereof with respect to the Securities
or other securities, properties or rights underlying the Warrants.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context or unless otherwise specified.
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7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and Redeemable Warrants or other securities
issuable upon exercise of the Warrants, and the shares of Common Stock or other
securities issuable upon exercise of the Redeemable Warrants have been
registered under the Securities Act of 1933, as amended (the "Act") pursuant to
the Company's Registration Statement on Form SB-2 (Registration No. 333-
_______) (the "Registration Statement"). All of the representatives and
warranties of the Company contained in the Underwriting Agreement relating to
the Registration Statement, the Preliminary Prospectus and Prospectus (as such
terms are defined in the Underwriting Agreement) and made as of the dates
provided therein, are incorporated by reference herein. The Company agrees and
covenants promptly to file post-effective amendments to such Registration
Statement as may be necessary in order to maintain its effectiveness and
otherwise to take such action as may be necessary to maintain the effectiveness
of the Registration Statement as long as any Warrants are outstanding. In the
event that, for any reason, whatsoever, the Company shall fail to maintain the
effectiveness of the Registration Statement, the certificates representing the
Warrant Securities shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities
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under the Act (other than pursuant to Form S-4, Form S-8 or a comparable
registration statement) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to the
Representative and to all other Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If the Representative or other Holders of
the Warrants and/or Warrant Securities notify the Company within twenty (20)
business days after receipt of any such notice of its or their desire to include
any such securities in such proposed registration statement, the Company shall
afford the Representative and such Holders of the Warrants and/or Warrant
Securities the opportunity to have any such Warrant Securities registered under
such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to
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comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of
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such Holders at the higher of the Market Price per share of Common Stock and per
Redeemable Warrant on (x) the date of the notice sent pursuant to Section 7.3(a)
or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and
all Warrants of such Holders at such Market Price less the Exercise Price of
such Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(d).
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) whose Warrant Securities are the subject of such registration
statement will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering
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and sale under the securities or blue sky laws of such states as reasonably are
requested by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
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Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial
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statements, as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by
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the Company and such other terms as are customarily contained in agreements of
that type used by the managing underwriter(s). The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall
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forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted exercise price
of each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either the Warrant Securities or a like number of
such securities with greater or superior voting rights.
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8.5 Merger or Consolidation. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
Warrant Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than
two cents (2(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
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9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants
and other
-18-
<PAGE>
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. The Company further covenants and agrees that upon exercise of the
Redeemable Warrants underlying the Warrants and payment of the respective
Redeemable Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and Redeemable Warrants and all Redeemable Warrants underlying
the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock or the Public Warrants issued to
the public in connection herewith may then be listed and/or quoted on the Amex
or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings or capital surplus
(in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
-19-
<PAGE>
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and between the Company and Continental
Stock Transfer and Trust Company (the "Redeemable Warrant Agreement"). Each
-20-
<PAGE>
Redeemable Warrant issuable upon exercise of the Warrants shall evidence the
right to initially purchase a fully paid and non-assessable share of Common
Stock at an initial purchase price of $______ [110% of the initial public
offering price per share] from ______ 1997 [six months from the effective date
of the Registration Statement] until 5:30 p.m. New York time on _________ 2002
[5 years from the effective date of the Registration Statement] at which time
the Redeemable Warrants, unless the exercise period has been extended, shall
expire. The exercise price of the Redeemable Warrants and the number of shares
of Common Stock issuable upon the exercise of the Redeemable Warrants are
subject to adjustment, whether or not the Warrants have been exercised and the
Redeemable Warrants have been issued, in the manner and upon the occurrence of
the events set forth in Section 8 of the Redeemable Warrant Agreement, which is
hereby incorporated herein by reference and made a part hereof as if set forth
in its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Redeemable Warrants underlying the Warrants, each registered
holder of such Redeemable Warrant shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Redeemable Warrant Agreement), free and
clear of all preemptive rights of stockholders, provided that such registered
holder complies with the terms governing exercise of the Redeemable Warrant set
forth in the Redeemable Warrant Agreement, and pays the applicable exercise
price, determined in accordance with the terms of the Redeemable Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith
issue to the registered holder of any such Redeemable Warrant in his name or in
such name as may be directed by him, certificates for the number of shares of
Common Stock so purchased. Except as otherwise provided in this Agreement, the
Redeemable Warrants
-21-
<PAGE>
underlying the Warrants shall be governed in all respects by the terms of the
Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in
the manner provided in the Redeemable Warrant Agreement, and upon any such
transfer, a new Redeemable Warrant Certificate shall be issued promptly to the
transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), which will not be
unreasonably withheld, the Redeemable Warrant Agreement will not be modified,
amended, canceled, altered or superseded, and that the Company will send to each
Holder, irrespective of whether or not the Warrants have been exercised, any and
all notices required by the Redeemable Warrant Agreement to be sent to holders
of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company;
or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and
-22-
<PAGE>
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on _______, 2004. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 2010.
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action,
-23-
<PAGE>
proceeding or claim. The Company, the Representative and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representative and any other registered Holders of Warrant
Certificates or Warrant Securities.
-24-
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
OMEGA ORTHODONTICS, INC.
By:
-------------------------------
Name:
Title:
Attest:
- ----------------------
Secretary
NATIONAL SECURITIES CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W- Warrants to Purchase
____ Shares of Common Stock and/or
____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of ________ Warrants to purchase initially, at
any time from __________, 1998 [one year from the effective date of the
Registration Statement] until 5:30 p.m. New York time on ___________, 2002 [five
years from the effective date of the Registration Statement] ("Expiration
Date"), up to __________ fully-paid and non-assessable shares of common stock,
$.001 par value ("Common Stock"), of OMEGA ORTHODONTICS, INC., a Delaware
corporation (the "Company"), and/or _____ Redeemable Warrants of the Company
(one Redeemable Warrant entitling the owner to purchase one fully-paid and
non-assessable share of Common Stock) at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $______ [120% of the
initial public offering price] per share of Common Stock and $____ [120% of the
initial public offering price] per Redeemable Warrant upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 1997 between the Company and NATIONAL SECURITIES
CORPORATION (the "Warrant
A-1
<PAGE>
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1997
OMEGA ORTHODONTICS, INC.
By:
-------------------------------
Name:
Title:
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
- ---------------- shares of Common Stock;
- ---------------- Redeemable Warrants;
- ---------------- shares of Common Stock together with an equal
number of Redeemable Warrants; or
- ---------------- shares of Common Stock together with
- ---------------- Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Omega
Orthodontics, Inc. in the amount of $_______________________, all in accordance
with the terms of Section 3.1 of the Representative's Warrant Agreement dated as
of ______________________, 1997 between Omega Orthodontics, Inc. and National
Securities Corporation. The undersigned requests that a certificate for such
securities be registered in the name of whose address is _______________________
and that such Certificate be delivered to ______________________________ whose
address is ______________________________.
Dated:
Signature
----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
- ------------- shares of Common Stock;
- ------------- Redeemable Warrants;
- ------------- shares of Common Stock together with an equal number of
Redeemable Warrants; or
- ------------- shares of Common Stock together with
- ------------- Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1997 between Omega Orthodontics, Inc.
and National Securities Corporation. The undersigned requests that a certificate
for such securities be registered in the name of _______________________________
whose address is _____________________________________ and that such Certificate
be delivered to _____________________ whose address is ________________________.
Dated:
Signature
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
-------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto
________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
------------- -------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
A-6
Exhibit 10.1
MANAGEMENT SERVICES AGREEMENT
BETWEEN
----------------------------
(the "New PC")
AND
Omega Orthodontics of Champaign, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................6
2.12 Marketing.................................................................6
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................7
2.19 Practice Transition and Associate Selection...............................7
ARTICLE 3 DUTIES OF THE NEW PC................................................8
3.1 General....................................................................8
3.2 Employment of the Orthodontists and Rendering of Patient Care..............8
3.3 Professional Services......................................................8
3.4 Records....................................................................8
3.5 Professional Expenses......................................................9
3.6 Professional Liability Insurance...........................................9
3.7 Employment Agreement.......................................................9
3.8 Confidentiality...........................................................10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCAT........................................10
ii
<PAGE>
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT............................12
5.3. No Warranty.............................................................13
ARTICLE 6 COMPENSATION.......................................................14
ARTICLE 7 SECURITY INTEREST..................................................14
ARTICLE 8 COVENANTS..........................................................15
8.1 New PC's Covenants........................................................15
8.2 MSO's Covenants...........................................................16
ARTICLE 9 INSURANCE AND INDEMNITY.............................................16
9.1 Insurance to be Maintained by the New PC..................................16
9.2 Insurance to be Maintained by the MSO.....................................16
9.3 Tail Insurance Coverage...................................................16
9.4 Additional Insureds.......................................................17
9.5 Indemnification...........................................................17
ARTICLE 10 TERMINATION.......................................................17
10.1 Termination by the New PC................................................17
10.2 Termination by MSO.......................................................18
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................19
ARTICLE 13 MISCELLANEOUS.....................................................19
13.1 Access to Records........................................................19
13.2 Patient Records..........................................................19
13.3 The New PC's Control Over the Orthodontic Practice.......................20
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION....................................20
14.1 Alternative Dispute Resolution...........................................20
14.2 Waiver of Jury...........................................................21
ARTICLE 15 GENERAL PROVISIONS................................................21
15.1 Notices..................................................................21
iii
<PAGE>
15.2 Confidentiality..........................................................21
15.3 Contract Modifications for Prospective Legal Events......................22
15.4 Remedies Cumulative......................................................22
15.5 No Obligation to Third Parties...........................................22
15.6 Entire Agreement.........................................................22
15.7 Assignment...............................................................22
15.8 Attorneys' Fees..........................................................22
15.9 Governing Law............................................................23
15.10 Events Excusing Performance.............................................23
15.11 Compliance with Applicable Laws.........................................23
15.12 Language Construction...................................................23
15.13 Amendments..............................................................23
15.14 Severability............................................................23
15.15 No Waiver...............................................................23
15.16 Captions................................................................23
15.17 Counterparts............................................................23
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
iv
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________,
1997, by and between ____________________, Inc., a professional corporation (the
"New PC") incorporated under the laws of the State of Illinois (the "State"),
and OMEGA Orthodontics of Champaign, Inc., a Delaware corporation (the "MSO"),
and OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Robert R. Schmisseur, D.D.S. ("Dr. Schmisseur") who is
duly licensed to practice orthodontics in the State have entered into that
certain Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Robert R. Schmisseur,
D.D.S., P.C., an Illinois professional corporation owned by Dr. Schmisseur was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Schmisseur and any and all other orthodontists who are or become affiliated with
the New PC as of or following the date and who are or become subsequently named
on Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Schmisseur and
the Orthodontists (if any) to render quality orthodontic care to the patients of
the New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
<PAGE>
1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services.
(a) The MSO shall supply secretarial, reception, maintenance, front
office, skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Schmisseur
and the Orthodontists (if any) and other individuals who are employees of the
New PC or otherwise under contract with the New PC to provide dental or
orthodontic, hygienic or other assistance or services to patients of the New PC
or otherwise required by applicable "Laws" (as defined in Section 2.6 below) to
be employees of the New PC to provide services to patients of the Practice. A
list of all Practice Providers and their relationship to the New PC is set forth
as Exhibit B attached hereto and incorporated herein by reference. Prior to
making any changes in the list of Practice Providers, the New PC shall use its
best efforts to consult with the MSO. The New PC also shall use its best efforts
to consult with the MSO with regard to the terms of contracts entered into
between the New PC and the Practice Providers and the terms and conditions of
their employment or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr.
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Schmisseur and the Orthodontists (if any) or any employee or agent of the New
PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and comprising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct
costs payable to Dr. Schmisseur and the Orthodontists (if any) and the
other Practice Providers of the New PC, and all withholding taxes and
assessments payable to Federal, state and local governments in connection
with the employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6
hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of
the MSO providing services to the New PC hereunder (but excluding Dr.
Schmisseur and all the Orthodontists (if any) and other Practice
Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or
any corporation affiliated with the MSO other than the kind of items
listed above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as
utility expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the
MSO's assets used in connection with the operation of the Orthodontic
Offices, commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists
to become employed by the New PC or other orthodontic entities to merge
with the New PC, actual out-of-pocket expenses of the MSO personnel
working on a specified employment arrangement or merger, whether or not
such employment arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its
obligations under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Schmisseur and the Orthodontists (if any) and the other Practice
Providers, or the costs of preparing Federal, state or local tax returns
thereof;
(2) Salaries, benefits and other direct costs of employing Dr.
Schmisseur and the Orthodontists (if any) and the other Practice
Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in
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professional associations and societies for Practice Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof;
(5) Costs of continuing professional education for Practice
Providers, including travel and related expenses;
(6) Costs associated with legal, accounting and professional
services incurred by or on behalf of the New PC other than as otherwise
expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of
any policy;
(8) Direct personal expenses of the Practice Providers of a kind
which the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other
expenses which are personal in nature);
(9) Charitable contributions by the New PC; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other
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materials reasonably related to the carrying out of the business purposes of the
New PC, including all stationery, printing and postage costs in connection
therewith. In connection with such marketing plan, the MSO shall advise Dr.
Schmisseur and the Orthodontists (if any) on establishing and maintaining a plan
for patients' payments for orthodontic services on an installment plan basis.
All marketing activities hereunder shall be conducted in compliance with all
applicable Laws governing advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for
security, maintenance and cleaning of the Orthodontic Offices, including the
furniture, fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice Providers. The MSO shall prepare
and file all reports, forms and returns required by Law in connection with
workers' compensation, unemployment insurance, social security and other similar
Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office
property damage and liability, including business interruption insurance, not
including professional liability insurance (which shall be and remain the
responsibility of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Schmisseur and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
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After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Schmisseur and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Schmisseur and
such Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Schmisseur and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Schmisseur and the
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr.
Schmisseur and each Orthodontist who provides orthodontic services to patients
is licensed by the State. In the event that any disciplinary, medical
malpractice or other actions are initiated against Dr. Schmisseur or any
Orthodontist or other Practice Provider, the New PC shall immediately inform the
MSO of such action and the underlying facts and circumstances subject to such
confidentiality agreement or arrangements as the New PC and the MSO shall
mutually determine at or prior to the time of such disclosure. The New PC agrees
to cooperate with and participate in quality assurance/utilization review
programs established by the MSO or mandated by accreditation and licensure
standards applicable to the practice of orthodontics. Deficiencies discovered in
the performance of any personnel or in the quality of professional services
shall be reported immediately to the MSO, and appropriate steps shall be taken
by the New PC at once to remedy such deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such
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records shall be sufficient to enable the MSO, on behalf of the New PC, to
obtain payments for services and related charges and to facilitate the delivery
of quality patient care by the New PC. Notwithstanding the foregoing, patient
dental records shall be and remain the property of the New PC and the contents
thereof shall be solely the responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Schmisseur and all the Orthodontists employed by the New
PC participate in such continuing education as is necessary for Dr. Schmisseur
and such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Schmisseur and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Schmisseur and each Orthodontist
associated with the New PC devote their full time and attention, unless other
specific provisions are made in writing and mutually agreed upon by the MSO and
New PC. The New PC will cause Dr. Schmisseur and each individual Orthodontist
who now is or hereafter becomes affiliated with the New PC to enter into a
written employment agreement (the "Employment Agreement") satisfactory in form
and substance to the MSO, pursuant to which Dr. Schmisseur or the Orthodontist
shall agree not to establish, operate or provide orthodontic or dental services,
without the prior written consent of both the New PC and the MSO, at any office
or facility other than the Orthodontic Office. In addition, such Employment
Agreement shall provide by its own terms or by a separate agreement that if Dr.
Schmisseur's or such Orthodontist's employment shall terminate for any reason
during the Term of this Agreement, for a period of 24 months after the
termination of Dr. Schmisseur's or such Orthodontist's Employment Agreement with
the New PC, Dr. Schmisseur or such Orthodontist shall agree not to establish,
operate or provide orthodontic or dental services, without the prior written
consent of both the New PC and the MSO, at any office practice or facility
whatsoever providing services similar to those provided by the New PC at any
orthodontic office within a fifteen (15) mile radius. Such Employment Agreement
(or separate agreement) shall also provide, among other things, that in the
event of a breach of Dr. Schmisseur's or the Orthodontist's agreement not to
compete with the New PC provided for in such Employment Agreement (or separate
agreement), the MSO shall be entitled to receive, in addition to other remedies
and not by way of an election of remedies, liquidated damages equaling the
greater of: (a) Dr. Schmisseur's or such Orthodontist's income, as shown on the
W-2 form prepared by the New PC, for the most recent calendar year; or (b)
$300,000. Such payment shall be made to the MSO by the New PC immediately
following receipt of the payment from Dr. Schmisseur or the breaching
Orthodontist by the New PC. Each of the MSO and OMEGA shall be expressly named
as a third-party beneficiary to such agreements between the New PC and Dr.
Schmisseur and each Orthodontist and the rights and remedies of the MSO and
OMEGA thereunder or otherwise in respect of the restrictive covenants set forth
in such agreements shall survive termination of this Agreement.
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3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its shareholders, directors, officers, affiliates, partners,
shareholders and independent contractors to immediately return to the MSO all
Confidential Information, and the New PC will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The New PC further
expressly acknowledges and agrees that any such use, appropriation or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the MSO and OMEGA, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the MSO and OMEGA, in addition to any other
remedies or damages available to either or both of them, shall be entitled to
injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude the MSO and OMEGA from
other remedies which may be available to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
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4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
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ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises
shall be subject to all of the terms and conditions of the Master Lease.
In the event of the termination of the MSO's interest as lessee under the
Master Lease for any reason, then the sublease created hereby shall
simultaneously terminate, unless the New PC assumes the obligations under
the Master Lease in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease
are incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its
terms, this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms
thereof, the MSO shall notify the New PC, at least 30 days prior to the
expiration of the time for exercising such option, of
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the MSO's intention to renew or not to renew such term. If the MSO
determines not to renew such term, the MSO shall provide or arrange for
the provision of comparable office space (the "Substitute Orthodontic
Office") within a radius of 15 miles of the Orthodontic Office, which
Substitute Orthodontic Office shall be subject to the approval of the New
PC (which approval shall not be unreasonably withheld or delayed). The
lease or sublease for such Substitute Orthodontic Office, as applicable,
shall be substituted for the lease described on Exhibit A hereto and all
references to the "Master Lease" shall thereafter be applicable to the
lease or sublease for the Substitute Orthodontic Office for purposes of
this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
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(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontistry.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. The New PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto and incorporated herein as
Exhibit C. In consideration of the foregoing, the parties agree that the monthly
Management Fees payable to the MSO by the New PC for services rendered pursuant
to this Agreement shall be reviewed and subject to adjustment at the close of
each year of the Term of this Agreement based upon industry standards of
practice and the MSO's costs in performing the required services. If the parties
cannot agree within thirty (30) days prior to the close of any such year on the
terms of any adjustment to the Management Fees for the following year, then the
then existing Management Fees shall remain in effect. The New PC specifically
agrees that the MSO may defer actual receipt of its Management Fees and/or
advance monies for purposes of managing the New PC's cash flow, and the MSO may
repay itself such advances or pay said deferred Management Fees when it deems
appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the
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MSO pursuant to this Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under this Agreement, the New PC hereby pledges, grants, bargains, assigns and
transfers to the MSO a security interest, pursuant to the Uniform Commercial
Code of the State, in and to all Practice Revenue and accounts receivable of
patients of the New PC, together with all proceeds thereof (collectively, the
"Collateral"), and further agrees not to pledge, assign, transfer or convey any
of the Collateral or any proceeds therefrom, without the prior written consent
of the MSO, except to affiliates of the MSO. Concurrent with the execution of
this Agreement, the New PC shall execute a Security Agreement, similar in form
and content as that attached hereto as Exhibit D and incorporated herein by this
reference in order that the MSO may perfect its interest in the Collateral. The
New PC expressly agrees to execute any appropriate UCC-1 Financing Statement and
UCC-1 Fixture filings, if so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr.
Schmisseur and the Orthodontists (if any) (to serve the orthodontic needs of the
patients of the New PC. The New PC covenants to monitor rigorously utilization
and quality of services provided at the Orthodontic Offices and shall take all
steps necessary to remedy any and all deficiencies in the efficiency or the
quality of orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
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(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Schmisseur and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Schmisseur and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr.
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Schmisseur's or such Orthodontist's relationship with the New PC, for any
reason, tail insurance coverage will be purchased by Dr. Schmisseur or such
Orthodontist. Such provisions may be contained in an employment agreement,
restrictive covenant agreement or other agreement entered into by the New PC and
Dr. Schmisseur or the Orthodontist, and the New PC hereby covenants with the MSO
to enforce such provisions relating to the tail insurance coverage or to provide
such coverage at the expense of the New PC or Dr. Schmisseur or each such
Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written
notice thereof has been given to the MSO by the New PC, the New PC may
terminate this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in
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Section 3 of that certain Stock Put/Call Option and Successor Designation
Agreement (the "Stock Put/Call Option and Successor Designation Agreement")
dated as of even date herewith, by and among the New PC, Dr. Schmisseur and the
Orthodontists (if any), OMEGA and the MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof , or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall materially default in the performance of
any other duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Schmisseur or any Orthodontist breaches or defaults
under his or her Employment Agreement and the New PC does not cause Dr.
Schmisseur or such Orthodontist to cure such breach or default within any
applicable grace period therefor, the MSO may give written notice of the
immediate termination of this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC;
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provided, however, that all contracts or fees set for services on behalf of the
New PC will be subject to final approval and acceptance by the New PC.
Additionally, the New PC hereby irrevocably appoints the MSO (and its designees)
its authorized agent and lawful attorney-in-fact to collect all bills and
accounts receivable for professional fees, charges and other amounts and
authorizes the MSO through its designees to take possession of all checks, money
orders and similar instruments received as payment of receivables to be
deposited into the New PC Account. The New PC hereby irrevocably appoints the
MSO as the New PC's attorney-in-fact, with full power and authority in the place
and stead of the New PC, in the MSO's discretion, to endorse in the name of the
New PC any checks, payments, notes, insurance payments and money orders, to
withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are irrevocable. Third
parties and entities and persons not a party to this Agreement are entitled to
rely on the foregoing attorneys-in-fact and an affidavit of the MSO attesting
thereto. The acceptance of this appointment by the MSO shall not obligate it to
perform any duty or covenant required to be performed by the New PC under or by
virtue of this Agreement. Notwithstanding the foregoing powers of attorney, the
New PC shall at any time, on the request of the MSO, sign financing statements,
security agreements or other agreements necessary or advisable to accomplish the
purpose of this Agreement. Upon the New PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is authorized as
the agent of the New PC to sign any such instruments. The New PC may review all
deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business
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hours to the New PC's and the MSO's records, including, but not limited to,
records of collections, expenses and disbursements as kept by the MSO in
performing the MSO's obligations under this Agreement, and the New PC may copy
any or all such records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Schmisseur or any of its Orthodontists (if
any) and other Practice Providers, shall have complete control and supervision
over the professional aspects of the New PC's practice, as well as the provision
of all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The MSO may, however, advise
the New PC as to the relationship between its performance of orthodontic
functions and the overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from
seeking a preliminary injunction or other provisional relief, either prior
to or during the proceeding provided for in this section, if in its
judgment such action is necessary to avoid irreparable damage or to
preserve the status quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject
to the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which describe how
those amounts are to be calculated, however, shall be subject to the
provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement
in accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
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14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
1701 South Prospect
Champaign, Illinois 61820
Attn: Robert R. Schmisseur, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of
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the performance of this Agreement, without the other party's or parties' (as the
case may be) written approval; provided, however, the foregoing shall not apply
to information which is required to be disclosed by Law, including federal or
state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any mediation or arbitration or other legal
action or proceeding is brought to enforce this Agreement, because of any
alleged breach hereof, or for a declaration of any rights and obligations
hereunder, the prevailing party in such mediation or arbitration, action or
proceeding shall be entitled to recover its costs incurred therein, including
reasonable attorneys' fees, in addition to any other relief to which it may be
entitled, all as determined and awarded by the parties in such mediation or by
the arbitrator or court as
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part of its judgment or decision therein, as the case may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written
consent of both parties.
15.14 Severability. In the event any provision of this Agreement is held
by a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
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NEW PC:
By:_______________________________
Name:
Title:
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MSO:
OMEGA ORTHODONTICS OF CHAMPAIGN,INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
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SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Robert R. Schmisseur, D.D.S.
1701 South Prospect
Champaign, Illinois 61820
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SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Schmisseur Attach]
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SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Seventy Five Percent (75%) of the Practice Revenues, and the New
PC shall be entitled to Twenty Five Percent (25%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing. At the
end of each twelve (12) month period during the Term the MSO shall provide the
New PC with an unaudited internal accounting of the MSO Expenses, prepared in
accordance with the accrual method of accounting. If the MSO Expenses as
reflected in such accounting as having been paid by the MSO are less than sixty
(60%) percent of the Practice Revenues for such twelve month period, fifty (50%)
percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
28
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Schmisseur Attach]
29
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Schmisseur Attach]
30
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
31
<PAGE>
AFFIDAVIT
I, Robert R. Schmisseur, D.D.S., declare:
I am an orthodontist, duly licensed in the State of Illinois and I
practice through a professional corporation under the name ______________ (the
"New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired
significant knowledge as to the overhead costs incurred and gross receipts
generated by similar types of orthodontic offices. Further, I am fully aware of
the non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 1997, between the New
PC and Omega Orthodontics of Champaign, Inc. (the "MSO") concerning the duties,
responsibilities and obligations undertaken by the MSO in managing and operating
all non-orthodontic aspects of the Orthodontic Office as contemplated by the
Agreement.
I have reviewed the prior operating financial statements of the
orthodontic office located at 1701 South Prospect, Champaign, Illinois 61820 and
an operating budget and estimated income of the orthodontic office, which, in my
opinion, can reasonably be expected from the operation of said office.
In my opinion, based upon my experience, the Management Fees of Seventy
Five Percent (75%) of "Practice Revenues" to be charged by the MSO as
contemplated by the Agreement, will afford it a reasonable but not excessive
return for its services rendered and obligations incurred. In addition, the New
PC Twenty Five Percent (25%) of "Practice Revenues" retained by the New PC, will
provide reasonable earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true
and correct to the best of my knowledge and belief.
Executed at , ________ this day of , 1997.
____________________________
Robert R. Schmisseur, D.D.S.
32
<PAGE>
STATE OF ILLINOIS
___________________, ss ____________________________, 1997
Then personally appeared the above-named Robert R. Schmisseur, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ___________________________________
Notary Public
My Commission Expires:
33
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
34
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, an Illinois corporation (the "New PC"), and
Robert R. Schmisseur, D.D.S. ("Dr. Schmisseur") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Champaign, Inc., a Delaware
corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Schmisseur shall cause the New
PC to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
35
<PAGE>
obligations of a secured party under the Uniform Commercial Code as adopted in
the state of Illinois (the "State"). Such rights shall include, without
limitation, the following:
A. The right, upon default, to have the Collateral, or any part
thereof, transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of
the Collateral as is reasonably necessary to repay the defaulted
indebtedness (together with expenses attendant upon such sale and
repayment), at public or private sale, as the MSO may elect, either for
cash or on credit, without assumption of any credit risk and without
demand or advertisement (unless otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the
secured party, at any time with respect to any Collateral, without the
signature of the New PC. The New PC hereby irrevocably appoints the MSO as
the New PC's attorney-in-fact, with full authority in the place and stead
of the New PC and in the name of the New PC, from time to time in the
MSO's discretion, to take any action and to execute any instrument which
the MSO may deem necessary or advisable to accomplish the purposes hereof.
The attorney-in-fact granted herein is coupled with an interest and is
irrevocable. Third parties and entities and persons not a party to this
Security Agreement are entitled to rely on this attorney-in-fact and an
affidavit of the MSO attesting thereto. The acceptance of this appointment
by the MSO shall not obligate it to perform any duty or covenant required
to be performed by the New PC under or by virtue of the Collateral.
Notwithstanding the foregoing power of attorney, the New PC shall at any
time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the
New PC's failure to sign said Financing Statements, security agreements or
other agreements, the MSO is authorized as the agent of the New PC to sign
any such instruments. Upon the request of the MSO, the New PC agrees to
pay all filing fees and to reimburse the MSO on demand for all costs and
expenses of any kind (including, without limitation, legal fees) incurred
in any way in connection with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred
by the MSO, including, without limitation, attorneys' fees and all other
reasonable expenses, liabilities and costs incurred by the MSO in
connection therewith;
36
<PAGE>
B. To the payment of the whole amount then owing and unpaid for
advances and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC
under the Agreement; and
D. To the payment to the New PC of any surplus then remaining from
such proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Champaign, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
1701 South Prospect
Champaign, Illinois 61820
Attn: Robert R. Schmisseur, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any
one or more defaults, if any, on the part of the other party, shall not be
construed to operate as a waiver of the other or future defaults under this
Agreement. This Security Agreement may be amended or modified only by the
written consent of both parties.
37
<PAGE>
10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
CHAMPAIGN , INC.
By:____________________________ By:___________________________
Name: Name:
Title: Title:
DR. SCHMISSEUR:
_______________________________
Robert R. Schmisseur, D.D.S.
39
<PAGE>
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
40
<PAGE>
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with
each party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the concurrence of
the mediator.
3. Each party may be represented by more than one person, e.g., one or
more of its officers and an attorney. Each party will have a representative
fully authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party to
this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the mediator
and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as
an arbitrator, unless the
41
<PAGE>
parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. The sole arbitrator shall be agreed upon by the parties
within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
42
Exhibit 10.2
MANAGEMENT SERVICES AGREEMENT
BETWEEN
----------------------------
(the "New PC")
AND
Omega Orthodontics of Colorado Springs, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................4
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............4
2.6 Regulatory Compliance Services.............................................4
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................5
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................7
2.11 Accounting; Bookkeeping and Reports.......................................7
2.12 Marketing.................................................................7
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................8
2.16 Maintenance and Cleaning Services.........................................8
2.17 Licenses and Permits......................................................8
2.18 Insurance.................................................................8
2.19 Practice Transition and Associate Selection...............................8
ARTICLE 3 DUTIES OF THE NEW PC................................................8
3.1 General....................................................................8
3.2 Employment of the Orthodontists and Rendering of Patient Care..............9
3.3 Professional Services......................................................9
3.4 Records....................................................................9
3.5 Professional Expenses......................................................9
3.6 Professional Liability Insurance...........................................9
3.7 Employment Agreement......................................................10
3.8 Confidentiality...........................................................10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION...................................11
ii
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................11
5.3. No Warranty.............................................................13
ARTICLE 6 COMPENSATION.......................................................14
ARTICLE 7 SECURITY INTEREST..................................................14
ARTICLE 8 COVENANTS..........................................................15
8.1 New PC's Covenants........................................................15
8.2 MSO's Covenants...........................................................16
ARTICLE 9 INSURANCE AND INDEMNITY.............................................17
9.1 Insurance to be Maintained by the New PC..................................17
9.2 Insurance to be Maintained by the MSO.....................................17
9.3 Tail Insurance Coverage...................................................17
9.4 Additional Insureds.......................................................17
9.5 Indemnification...........................................................17
ARTICLE 10 TERMINATION.......................................................18
10.1 Termination by the New PC................................................18
10.2 Termination by MSO.......................................................18
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................19
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................20
ARTICLE 13 MISCELLANEOUS.....................................................20
13.1 Access to Records........................................................20
13.2 Patient Records..........................................................20
13.3 The New PC's Control Over the Orthodontic Practice.......................20
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................20
14.1 Alternative Dispute Resolution...........................................20
14.2 Waiver of Jury...........................................................21
ARTICLE 15 GENERAL PROVISIONS................................................21
15.1 Notices..................................................................21
15.2 Confidentiality..........................................................22
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15.3 Contract Modifications for Prospective Legal Events......................22
15.4 Remedies Cumulative......................................................22
15.5 No Obligation to Third Parties...........................................22
15.6 Entire Agreement.........................................................22
15.7 Assignment...............................................................23
15.8 Attorneys' Fees..........................................................23
15.9 Governing Law............................................................23
15.10 Events Excusing Performance.............................................23
15.11 Compliance with Applicable Laws.........................................23
15.12 Language Construction...................................................23
15.13 Amendments..............................................................24
15.14 Severability............................................................24
15.15 No Waiver...............................................................24
15.16 Captions................................................................24
15.17 Counterparts............................................................24
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
EXHIBIT F PURCHASE NOTE
iv
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________,
1997, by and between ____________________, Inc., a professional corporation (the
"New PC") incorporated under the laws of the State of Colorado (the "State"),
and OMEGA Orthodontics of Colorado Springs, Inc., a Delaware corporation (the
"MSO"), and OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Theodore G. Saydyk, Jr., D.D.S. ("Dr. Saydyk") who is
duly licensed to practice orthodontics in the State have entered into that
certain Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Theodore G. Saydyk,
Jr., D.D.S., P.C., a Colorado professional corporation owned by Dr. Saydyk was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Saydyk and any and all other orthodontists who are or become affiliated with the
New PC as of or following the date and who are or become subsequently named on
Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Saydyk and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
<PAGE>
1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services.
(a) The MSO shall supply secretarial, reception, maintenance, front
office, skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
2
<PAGE>
withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Saydyk, the
Orthodontists (if any), any Temporary Orthodontist (as defined in (c) below) and
other individuals who are employees of the New PC or otherwise under contract
with the New PC to provide dental or orthodontic, hygienic or other assistance
or services to patients of the New PC or otherwise required by applicable "Laws"
(as defined in Section 2.6 below) to be employees of the New PC to provide
services to patients of the Practice. A list of all Practice Providers and their
relationship to the New PC is set forth as Exhibit B attached hereto and
incorporated herein by reference. Prior to making any changes in the list of
Practice Providers, the New PC shall use its best efforts to consult with the
MSO. The New PC also shall use its best efforts to consult with the MSO with
regard to the terms of contracts entered into between the New PC and the
Practice Providers and the terms and conditions of their employment or
engagement as independent contractors.
(c) "Temporary Orthodontist" shall mean any one or more Orthodontists
hired by the New PC to substitute for Dr. Saydyk on a short-term or long-term
temporary basis due to Dr. Saydyk's Pre-Existing Medical Conditions.
"Pre-Existing Medical Conditions" shall mean either or both of Dr. Saydyk's two
pre-existing medical conditions previously disclosed to OMEGA. The New PC and
the MSO recognize that Dr. Saydyk's Pre-Existing Medical Conditions may require
that a Temporary Orthodontist be hired by the New PC on short notice, and that
in such event, the MSO may not have prior notice of the Temporary Orthodontist's
hiring. In an effort to minimize the lack of notice to the MSO and the
disruption to the New PC's business, the New PC and the MSO agree that on and
after the date of this Agreement, each shall use their best efforts to locate
one or more orthodontists to be the Temporary Orthodontist, if the need arises,
and the New PC agrees to contract with such Temporary Orthodontist. In the event
that Dr. Saydyk's Pre-Existing Medical Conditions reoccur, and provided neither
the New PC nor Dr. Saydyk are otherwise in default under this Agreement or the
related agreements, neither Dr. Saydyk nor the New PC shall be in default under
this Agreement or related agreements provided that: (1) the New PC's business
for that fiscal year is not materially adversely affected by Dr. Saydyk's
absence due to his Pre-Existing Medical Conditions; (2) beginning one week after
the first day of Dr. Saydyk's absence due to the Pre-Existing Medical
Conditions, at least ninety percent of his "Average Weekly Hours", as defined
below, are covered by one or more Temporary Orthodontists; and (3) the New PC
and Dr. Saydyk each use their best efforts to locate and hire one or more
Temporary Orthodontists to cover all of Dr. Saydyk's Average Weekly Hours during
the expected time of absence. Notwithstanding the foregoing sentence, if the
Pre-Existing Medical Conditions, for a continuous period of three hundred and
sixty five (365) days, or for more than a total of five hundred (500) days over
the period of two calendar years, (i) prevent Dr. Saydyk from practicing
orthodontics for the New PC for the Average Weekly Hours each week; or (ii)
substantially impair the New PC's or Dr. Saydyk's ability to practice
orthodontics, then the MSO shall be entitled to exercise its rights under
Section 5 of the Stock Put/Call Option and Successor Designation Agreement by
and between the New PC, Dr. Saydyk, OMEGA and the MSO dated of even date
herewith. As used in this Agreement, "Average Weekly Hours" means a number which
is equal to: (a) the total number of hours Dr. Saydyk practiced orthodontics
over the immediately preceding one hundred fifty-six (156) weeks, excluding
therefrom those weeks where Dr. Saydyk was absent from the office for any
portion of the week for any reason other than vacations and holidays, divided by
the number of weeks Dr. Saydyk practiced orthodontics and was not absent for
such reasons.
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2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr. Saydyk and the Orthodontists (if
any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and compromising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill
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under the New PC's provider number. In this regard, the New PC appoints the MSO
for the Term of this Agreement in accordance with the provisions of Article 11
hereof as its true and lawful attorney-in-fact for the purposes set forth above
in this Section 2.7 and in Section 2.8 below. The MSO does not guarantee
collection and is not responsible for any loss to the New PC as a result of any
inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct
costs payable to Dr. Saydyk and the Orthodontists (if any) and the other
Practice Providers of the New PC, and all withholding taxes and
assessments payable to Federal, state and local governments in connection
with the employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6
hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of
the MSO providing services to the New PC hereunder (but excluding Dr.
Saydyk and all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance,
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such as work management, materials management, purchasing, charge and
coding analysis, and business office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or
any corporation affiliated with the MSO other than the kind of items
listed above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as
utility expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the
MSO's assets used in connection with the operation of the Orthodontic
Offices, commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists
to become employed by the New PC or other orthodontic entities to merge
with the New PC, actual out-of-pocket expenses of the MSO personnel
working on a specified employment arrangement or merger, whether or not
such employment arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its
obligations under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Saydyk and the Orthodontists (if any) and the other Practice Providers, or
the costs of preparing Federal, state or local tax returns thereof;
(2) Salaries, benefits and other direct costs of employing Dr.
Saydyk and the Orthodontists (if any) and the other Practice Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in professional associations and societies for Practice
Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof;
(5) Costs of continuing professional education for Practice
Providers, including travel and related expenses;
(6) Costs associated with legal, accounting and professional
services incurred by or on behalf of the New PC other than as otherwise
expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of
any policy;
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(8) Direct personal expenses of the Practice Providers of a kind
which the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other
expenses which are personal in nature);
(9) Charitable contributions by the New PC; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other materials reasonably related to
the carrying out of the business purposes of the New PC, including all
stationery, printing and postage costs in connection therewith. In connection
with such marketing plan, the MSO shall advise Dr. Saydyk and the Orthodontists
(if any) on establishing and maintaining a plan for patients' payments for
orthodontic services on an installment plan basis. All marketing activities
hereunder shall be conducted in compliance with all applicable Laws governing
advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without
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limitation, the performance of any task or the taking of any action which
violates the Business and Professions Code of the State as it relates to
professional orthodontic practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for
security, maintenance and cleaning of the Orthodontic Offices, including the
furniture, fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice Providers. The MSO shall prepare
and file all reports, forms and returns required by Law in connection with
workers' compensation, unemployment insurance, social security and other similar
Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office
property damage and liability, including business interruption insurance, not
including professional liability insurance (which shall be and remain the
responsibility of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Saydyk and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General The New PC shall be responsible for the management of its
practice and
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the Orthodontic Office, in accordance with the requirements of the Laws of the
State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Saydyk and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Saydyk and such
Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Saydyk and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Saydyk and the
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr. Saydyk
and each Orthodontist who provides orthodontic services to patients is licensed
by the State. In the event that any disciplinary, medical malpractice or other
actions are initiated against Dr. Saydyk or any Orthodontist or other Practice
Provider, the New PC shall immediately inform the MSO of such action and the
underlying facts and circumstances subject to such confidentiality agreement or
arrangements as the New PC and the MSO shall mutually determine at or prior to
the time of such disclosure. The New PC agrees to cooperate with and participate
in quality assurance/utilization review programs established by the MSO or
mandated by accreditation and licensure standards applicable to the practice of
orthodontics. Deficiencies discovered in the performance of any personnel or in
the quality of professional services shall be reported immediately to the MSO,
and appropriate steps shall be taken by the New PC at once to remedy such
deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such records shall be sufficient to
enable the MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Saydyk and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Dr. Saydyk and such
the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in
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accordance with the provisions of Article 9 hereof. The New PC shall also
cooperate in any programs recommended by the MSO to assure that each of its
Orthodontists is insurable, and that Dr. Saydyk and each Orthodontist
participates in an on-going risk management program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Saydyk and each Orthodontist associated
with the New PC devote their full time and attention, unless other specific
provisions are made in writing and mutually agreed upon by the MSO and New PC.
The New PC will cause Dr. Saydyk and each individual Orthodontist, other than a
Temporary Orthodontist, who now is or hereafter becomes affiliated with the New
PC to enter into a written employment agreement (the "Employment Agreement")
satisfactory in form and substance to the MSO, pursuant to which Dr. Saydyk or
the Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the New PC and the
MSO, at any office or facility other than the Orthodontic Office. In addition,
such Employment Agreement shall provide by its own terms or by a separate
agreement that if Dr. Saydyk's or such Orthodontist's employment shall terminate
for any reason during the Term of this Agreement, for a period of 24 months
after the termination of Dr. Saydyk's or such Orthodontist's Employment
Agreement with the New PC, Dr. Saydyk or such Orthodontist shall agree not to
establish, operate or provide orthodontic or dental services, without the prior
written consent of both the New PC and the MSO, at any office practice or
facility whatsoever providing services similar to those provided by the New PC
at any orthodontic office within a fifteen (15) mile radius. Such Employment
Agreement (or separate agreement) shall also provide, among other things, that
in the event of a breach of Dr. Saydyk's or the Orthodontist's agreement not to
compete with the New PC provided for in such Employment Agreement (or separate
agreement), the MSO shall be entitled to receive, in addition to other remedies
and not by way of an election of remedies, liquidated damages equaling the
greater of: (a) Dr. Saydyk's or such Orthodontist's income, as shown on the W-2
form prepared by the New PC, for the most recent calendar year; or (b) $300,000.
Such payment shall be made to the MSO by the New PC immediately following
receipt of the payment from Dr. Saydyk or the breaching Orthodontist by the New
PC. Each of the MSO and OMEGA shall be expressly named as a third-party
beneficiary to such agreements between the New PC and Dr. Saydyk and each
Orthodontist and the rights and remedies of the MSO and OMEGA thereunder or
otherwise in respect of the restrictive covenants set forth in such agreements
shall survive termination of this Agreement.
3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its
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shareholders, directors, officers, affiliates, partners, shareholders and
independent contractors to immediately return to the MSO all Confidential
Information, and the New PC will not, and will cause its affiliates, partners,
employees and independent contractors not to, thereafter use, appropriate, or
reproduce such Confidential Information. The New PC further expressly
acknowledges and agrees that any such use, appropriation or reproduction of any
such Confidential Information by any of the foregoing after the expiration or
termination of this Agreement will result in irreparable injury to the MSO and
OMEGA, that the remedy at law for the foregoing would be inadequate, and that in
the event of any such use, appropriation, or reproduction of any such
Confidential Information after the termination or expiration of this Agreement,
the MSO and OMEGA, in addition to any other remedies or damages available to
either or both of them, shall be entitled to injunctive or other equitable
relief without the necessity of proving actual damages but such rights to relief
shall not preclude the MSO and OMEGA from other remedies which may be available
to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this
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Agreement the Orthodontic Offices, and the leasehold improvements and fixtures,
furniture and equipment at the Orthodontic Offices as listed from time to time
on Schedule 2 attached hereto and incorporated herein by this reference, under
the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises
shall be subject to all of the terms and conditions of the Master Lease.
In the event of the termination of the MSO's interest as lessee under the
Master Lease for any reason, then the sublease created hereby shall
simultaneously terminate, unless the New PC assumes the obligations under
the Master Lease in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease
are incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its
terms, this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms
thereof, the MSO shall notify the New PC, at least 30 days prior to the
expiration of the time for exercising such option, of the MSO's intention
to renew or not to renew such term. If the MSO determines not to renew
such term, the MSO shall provide or arrange for the provision of
comparable office space (the "Substitute Orthodontic Office") within a
radius of 15 miles of the Orthodontic Office, which Substitute Orthodontic
Office shall be subject to the approval of the New PC (which approval
shall not be unreasonably withheld or delayed). The lease or sublease for
such Substitute Orthodontic Office, as applicable, shall be substituted
for the lease described on Exhibit A hereto and all references to the
"Master Lease" shall
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thereafter be applicable to the lease or sublease for the Substitute
Orthodontic Office for purposes of this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontists.
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ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. The New PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto and incorporated herein as
Exhibit C. In consideration of the foregoing, the parties agree that the monthly
Management Fees payable to the MSO by the New PC for services rendered pursuant
to this Agreement shall be reviewed and subject to adjustment at the close of
each year of the Term of this Agreement based upon industry standards of
practice and the MSO's costs in performing the required services. If the parties
cannot agree within thirty (30) days prior to the close of any such year on the
terms of any adjustment to the Management Fees for the following year, then the
then existing Management Fees shall remain in effect. The New PC specifically
agrees that the MSO may defer actual receipt of its Management Fees and/or
advance monies for purposes of managing the New PC's cash flow, and the MSO may
repay itself such advances or pay said deferred Management Fees when it deems
appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the MSO pursuant to this Agreement and any funds
advanced by the MSO to or on behalf of the New PC pursuant to this Agreement and
for the faithful and timely performance of all the covenants and conditions to
be performed by the New PC under this Agreement, the New PC hereby pledges,
grants, bargains, assigns and transfers to the MSO a security interest, pursuant
to the Uniform Commercial Code of the State, in and to all Practice Revenue and
accounts receivable of patients of the New PC, together with all proceeds
thereof (collectively, the "Collateral"), and further agrees not to pledge,
assign, transfer or convey any of the Collateral or any proceeds
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therefrom, without the prior written consent of the MSO, except to affiliates of
the MSO. Concurrent with the execution of this Agreement, the New PC shall
execute a Security Agreement, similar in form and content as that attached
hereto as Exhibit D and incorporated herein by this reference in order that the
MSO may perfect its interest in the Collateral. The New PC expressly agrees to
execute any appropriate UCC-1 Financing Statement and UCC-1 Fixture filings, if
so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr. Saydyk
and the Orthodontists (if any) (to serve the orthodontic needs of the patients
of the New PC. The New PC covenants to monitor rigorously utilization and
quality of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
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may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
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ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Saydyk and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Saydyk and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Saydyk's or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
Dr. Saydyk or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the New PC and Dr. Saydyk or the Orthodontist, and the New PC hereby
covenants with the MSO to enforce such provisions relating to the tail insurance
coverage or to provide such coverage at the expense of the New PC or Dr. Saydyk
or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
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ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written
notice thereof has been given to the MSO by the New PC, the New PC may
terminate this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call Option and Successor Designation Agreement") dated as of even date
herewith, by and among the New PC, Dr. Saydyk and the Orthodontists (if any),
OMEGA and the MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall default in the performance of any other
material duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
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(d) In the event Dr. Saydyk or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Dr. Saydyk or such
Orthodontist to cure such breach or default within any applicable grace period
therefor, the MSO may give written notice of the immediate termination of this
Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the condition set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC; provided, however, that all contracts or fees set for services on behalf of
the New PC will be subject to final approval and acceptance by the New PC.
Additionally, the New PC hereby irrevocably appoints the MSO (and its designees)
its authorized agent and lawful attorney-in-fact to collect all bills and
accounts receivable for professional fees, charges and other amounts and
authorizes the MSO through its designees to take possession of all checks, money
orders and similar instruments received as payment of receivables to be
deposited into the New PC Account. The New PC hereby irrevocably appoints the
MSO as the New PC's attorney-in-fact, with full power and authority in the place
and stead of the New PC, in the MSO's discretion, to endorse in the name of the
New PC any checks, payments, notes, insurance payments and money orders, to
withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are irrevocable. Third
parties and entities and persons not a party to this Agreement are entitled to
rely on the foregoing attorneys-in-fact and an affidavit of the MSO attesting
thereto. The acceptance of this appointment by the MSO shall not obligate it to
perform any duty or covenant required to be performed by the New PC under or by
virtue of this Agreement. Notwithstanding the foregoing powers of attorney, the
New PC shall at any time, on the request of the MSO, sign financing statements,
security agreements or other agreements necessary or advisable to accomplish the
purpose of this Agreement. Upon the New PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is authorized as
the agent of the New PC to sign any such instruments. The New PC may review all
deposits and expenses upon request.
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ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and disbursements as kept by the MSO in performing the
MSO's obligations under this Agreement, and the New PC may copy any or all such
records.
13.3 The New PC's Control Over the Orthodontic. Notwithstanding the
authority granted to the MSO herein, the MSO and the New PC agree that the New
PC, personally or through Dr. Saydyk or any of its Orthodontists (if any) and
other Practice Providers, shall have complete control and supervision over the
professional aspects of the New PC's practice, as well as the provision of all
professional services, including, without limitation, the selection of a course
of treatment for a patient, the procedures or materials to be used as a part of
such course of treatment, and the manner in which such course of treatment is
carried out by the New PC. The New PC shall have sole authority to direct the
business, professional, and ethical aspects of the New PC. The MSO shall have no
authority, directly or indirectly, to perform, and shall not perform, any
orthodontic function, or to influence or otherwise interfere with the exercise
of the New PC's professional judgment. The MSO may, however, advise the New PC
as to the relationship between its performance of orthodontic functions and the
overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the
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parties, any party may invoke the procedures set forth in Exhibit E hereto and
the parties agree to use these procedures, except paragraph (b) of this Section
14.1, prior to any party pursuing other available remedies. The parties will
meet and attempt in good faith to resolve any controversy or claim arising out
of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from
seeking a preliminary injunction or other provisional relief, either prior
to or during the proceeding provided for in this section, if in its
judgment such action is necessary to avoid irreparable damage or to
preserve the status quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject
to the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which describe how
those amounts are to be calculated, however, shall be subject to the
provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement
in accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
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1317 North Academy Boulevard, Suite 203
Colorado Springs, Colorado 80909
Attn: Theodore G. Saydyk, Jr., D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's or parties' (as
the case may be) written approval; provided, however, the foregoing shall not
apply to information which is required to be disclosed by Law, including federal
or state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto,
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together with the Stock Put/Call Option and Successor Designation Agreement of
even date herewith and the Employment Agreement(s) (including the related
non-competition agreements or covenants), constitutes the entire agreement
between the parties concerning this subject matter, and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties
concerning the contents hereof. No supplement, modification, or amendment to
this Agreement shall be binding unless executed in writing by all of the parties
hereto, except as otherwise provided herein. No waiver of any of the provisions
of this Agreement shall be deemed to constitute a waiver of any other provision,
whether similar or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any mediation or arbitration or other legal
action or proceeding is brought to enforce this Agreement, because of any
alleged breach hereof, or for a declaration of any rights and obligations
hereunder, the prevailing party in such mediation or arbitration, action or
proceeding shall be entitled to recover its costs incurred therein, including
reasonable attorneys' fees, in addition to any other relief to which it may be
entitled, all as determined and awarded by the parties in such mediation or by
the arbitrator or court as part of its judgment or decision therein, as the case
may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
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15.13 Amendments. This Agreement may be amended only by the written
consent of both parties.
15.14 Severability. In the event any provision of this Agreement is held
by a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By:_______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF COLORADO
SPRINGS, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
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SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Theodore G. Saydyk, Jr., D.D.S.
1317 North Academy Boulevard, Suite 203
Colorado Springs, Colorado 80909
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SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Saydyk Attach]
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SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Seventy-Five Percent (75%) of the Practice Revenues, and the New
PC shall be entitled to Twenty-Five Percent (25%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing. At the
end of each twelve (12) month period during the Term the MSO shall provide the
New PC with an unaudited internal accounting of the MSO Expenses, prepared in
accordance with the accrual method of accounting. If the MSO Expenses as
reflected in such accounting as having been paid by the MSO are less than sixty
(60%) percent of the Practice Revenues for such twelve month period, fifty (50%)
percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Saydyk Attach]
29
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EXHIBIT B
PRACTICE PROVIDERS
[Dr. Saydyk Attach]
30
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EXHIBIT C
New PC'S AFFIDAVIT
31
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AFFIDAVIT
I, Theodore G. Saydyk, Jr., D.D.S., declare:
I am an orthodontist, duly licensed in the State of Colorado and I
practice through a professional corporation under the name ______________ (the
"New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired
significant knowledge as to the overhead costs incurred and gross receipts
generated by similar types of orthodontic offices. Further, I am fully aware of
the non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 1997, between the New
PC and Omega Orthodontics of Colorado Springs, Inc. (the "MSO") concerning the
duties, responsibilities and obligations undertaken by the MSO in managing and
operating all non-orthodontic aspects of the Orthodontic Office as contemplated
by the Agreement.
I have reviewed the prior operating financial statements of the
orthodontic office located at 1317 North Academy Boulevard, Suite 203, Colorado
Springs, Colorado 80909 and an operating budget and estimated income of the
orthodontic office, which, in my opinion, can reasonably be expected from the
operation of said office.
In my opinion, based upon my experience, the Management Fees of ____
Percent (___%) of "Practice Revenues" to be charged by the MSO as contemplated
by the Agreement, will afford it a reasonable but not excessive return for its
services rendered and obligations incurred. In addition, the New PC ____ Percent
( %) of "Practice Revenues" retained by the New PC, will provide reasonable
earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true
and correct to the best of my knowledge and belief.
Executed at , ________ this day of , 1997.
______________________________
Theodore G. Saydyk, Jr., D.D.S.
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STATE OF COLORADO
___________________, ss ________________, 1997
Then personally appeared the above-named Theodore G. Saydyk, Jr., D.D.S.
and acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
33
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EXHIBIT D
SECURITY AGREEMENT
34
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, a Colorado corporation (the "New PC"), and
Theodore G. Saydyk, Jr., D.D.S. ("Dr. Saydyk") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Colorado Springs, Inc., a
Delaware corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Saydyk shall cause the New PC to
perform fully and on a timely basis all of the New PC's obligations under this
Security Agreement. Notwithstanding the foregoing sentence, Dr. Saydyk shall be
released from the obligation to cause the New PC to perform the obligations set
forth in the preceding sentence, upon the execution of an agreement,
satisfactory to the MSO, by an Designated Successor to assume such obligations.
The MSO may at its option file a financing statement (Form UCC-1) in order to
perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
35
<PAGE>
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and obligations of a secured party under the Uniform
Commercial Code as adopted in the state of Colorado (the "State"). Such rights
shall include, without limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
36
<PAGE>
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Colorado Springs, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
1317 North Academy Boulevard, Suite 203
Colorado Springs, Colorado 80909
Attn: Theodore G. Saydyk, Jr., D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any
one or more defaults,
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if any, on the part of the other party, shall not be construed to operate as a
waiver of the other or future defaults under this Agreement. This Security
Agreement may be amended or modified only by the written consent of both
parties.
10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
COLORADO SPRINGS , INC.
By:____________________________ By:_________________________
Name: Name:
Title: Title:
DR. SAYDYK:
_______________________________
Theodore G. Saydyk, Jr., D.D.S.
39
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EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or
more of its officers and an attorney. Each party will have a representative
fully authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party
to this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action
or proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as
an arbitrator, unless the
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parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall submit
the matter to binding arbitration before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. If the party initially raising the dispute to be resolved is
New PC or Dr. Saydyk, the arbitration shall be held in Boston, Massachusetts,
and if the party initially raising the dispute to be resolved is the MSO or
OMEGA, the arbitration shall be held in Denver, Colorado. The sole arbitrator
shall be agreed upon by the parties within twenty (20) days after either party
elects to submit any issue to arbitration or, failing that, shall be selected by
CPR. A qualified arbitrator is one who is familiar with the principal subject
matter of the issues to be arbitrated such as by way of example, healthcare
services industry matters, management consulting services generally or business
law/corporate matters generally. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator shall
not have the authority to award multiple, punitive or consequential damages
under any circumstances.
Exhibit 10.3
MANAGEMENT SERVICES AGREEMENT
BETWEEN
----------------------------
(the "New PC")
AND
Omega Orthodontics of Woodland Hills, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM .......................................................... 1
ARTICLE 2 DUTIES OF THE MSO ............................................. 2
2.1 General ............................................................. 2
2.2 Orthodontic Office Services. ........................................ 2
2.3 Administrative Services. ............................................ 2
2.4 Business Systems, Procedures and Forms .............................. 3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control ........ 3
2.6 Regulatory Compliance Services ...................................... 3
2.7 Billing, Collection ................................................. 4
2.8 Disbursement of Funds ............................................... 4
2.9 MSO Expenses ........................................................ 5
2.10 Credit Reports ...................................................... 6
2.11 Accounting; Bookkeeping and Reports ................................. 6
2.12 Marketing ........................................................... 7
2.13 Complaints .......................................................... 7
2.14 Practice Laws ....................................................... 7
2.15 Monthly Meetings .................................................... 7
2.16 Maintenance and Cleaning Services ................................... 7
2.17 Licenses and Permits ................................................ 7
2.18 Insurance ........................................................... 7
2.19 Practice Transition and Associate Selection ......................... 7
ARTICLE 3 DUTIES OF THE NEW PC .......................................... 8
3.1 General ............................................................. 8
3.2 Employment of the Orthodontists and Rendering of Patient Care ....... 8
3.3 Professional Services ............................................... 8
3.4 Records ............................................................. 9
3.5 Professional Expenses ............................................... 9
3.6 Professional Liability Insurance .................................... 9
3.7 Employment Agreement ................................................ 9
3.8 Confidentiality ..................................................... 10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION ..................... 10
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT ...................... 11
5.3. No Warranty ......................................................... 13
ARTICLE 6 COMPENSATION .................................................. 13
ARTICLE 7 SECURITY INTEREST ............................................ 14
ARTICLE 8 COVENANTS ..................................................... 14
8.1 New PC's Covenants .................................................. 15
8.2 MSO's Covenants ..................................................... 16
ARTICLE 9 INSURANCE AND INDEMNITY ........................................ 16
9.1 Insurance to be Maintained by the New PC ............................ 16
9.2 Insurance to be Maintained by the MSO ............................... 16
9.3 Tail Insurance Coverage ............................................. 16
9.4 Additional Insureds ................................................. 16
9.5 Indemnification ..................................................... 16
ARTICLE 10 TERMINATION .................................................. 17
10.1 Termination by the New PC ........................................... 17
10.2 Termination by MSO .................................................. 17
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY ...................... 18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP .......................... 19
ARTICLE 13 MISCELLANEOUS ................................................ 19
13.1 Access to Records ................................................... 19
13.2 Patient Records ..................................................... 19
13.3 The New PC's Control Over the Orthodontic Practice .................. 19
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION ................................ 20
14.1 Alternative Dispute Resolution. ...................................... 20
14.2 Waiver of Jury ....................................................... 20
ARTICLE 15 GENERAL PROVISIONS ........................................... 20
15.1 Notices ............................................................. 21
15.2 Confidentiality ..................................................... 21
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15.3 Contract Modifications for Prospective Legal Events ................. 21
15.4 Remedies Cumulative ................................................. 21
15.5 No Obligation to Third Parties ...................................... 22
15.6 Entire Agreement .................................................... 22
15.7 Assignment .......................................................... 22
15.8 Attorneys' Fees ..................................................... 22
15.9 Governing Law ....................................................... 22
15.10 Events Excusing Performance ......................................... 22
15.11 Compliance with Applicable Laws ..................................... 23
15.12 Language Construction ............................................... 23
15.13 Amendments .......................................................... 23
15.14 Severability ........................................................ 23
15.15 No Waiver ........................................................... 23
15.16 Captions ............................................................ 23
15.17 Counterparts ........................................................ 23
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENTS
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
iv
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________, 1997,
by and between ____________________, Inc., a professional corporation (the "New
PC") incorporated under the laws of the State of California (the "State"), and
OMEGA Orthodontics of Woodland Hills, Inc., a Delaware corporation (the "MSO"),
and OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Scott E. Feldman, D.D.S. ("Dr. Feldman") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Scott E. Feldman,
D.D.S., M.S., a California professional corporation owned by Dr. Feldman was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Feldman and any and all other orthodontists who are or become affiliated with
the New PC as of or following the date and who are or become subsequently named
on Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Feldman and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
<PAGE>
1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services.
(a) The MSO shall supply secretarial, reception, maintenance, front office,
skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Feldman and
the Orthodontists (if any) and other individuals who are employees of the New PC
or otherwise under contract with the New PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the New PC or otherwise
required by applicable "Laws" (as defined in Section 2.6 below) to be employees
of the New PC to provide services to patients of the Practice. A list of all
Practice Providers and their relationship to the New PC is set forth as Exhibit
B attached hereto and incorporated herein by reference. Prior to making any
changes in the list of Practice Providers, the New PC shall use its best efforts
to consult with the MSO. The New PC also shall use its best efforts to consult
with the MSO with regard to the terms of contracts entered into between the New
PC and the Practice Providers and the terms and conditions of their employment
or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr. Feldman
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and the Orthodontists (if any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and compromising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct costs
payable to Dr. Feldman and the Orthodontists (if any) and the other
Practice Providers of the New PC, and all withholding taxes and assessments
payable to Federal, state and local governments in connection with the
employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6 hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of the
MSO providing services to the New PC hereunder (but excluding Dr. Feldman
and all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Direct costs associated with operating the Orthodontic Offices,
including without limitation, utilities, cleaning and maintenance;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as utility
expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists to
become employed by the New PC or other orthodontic entities to merge with
the New PC, actual out-of-pocket expenses of the MSO personnel working on a
specified employment arrangement or merger, whether or not such employment
arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its obligations
under this Agreement, but excluding any corporate overhead costs of the MSO
or any corporation affiliated with the MSO not specifically listed above.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Feldman and the Orthodontists (if any) and the other Practice Providers, or
the costs of preparing Federal, state or local tax returns thereof;
(2) Salaries, benefits and other direct costs of employing Dr. Feldman
and the Orthodontists (if any) and the other Practice Providers;
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(3) Physician licensure fees, board certification fees and costs of
membership in professional associations and societies for Practice
Providers beyond any reimbursement made under the "Approved Budget", as
defined below;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof, beyond any reimbursement made under
the Approved Budget;
(5) Costs of continuing professional education for Practice Providers,
including travel and related expenses, beyond any reimbursement made under
the Approved Budget;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC other than as otherwise expressly
provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of any
policy;
(8) Direct personal expenses of the Practice Providers of a kind which
the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other expenses
which are personal in nature);
(9) Charitable contributions by the New PC beyond any reimbursements
made under the Approved Budget; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
As used in this Section 2.9, "Approved Budget" means, for each fiscal year,
the aggregate maximum amount that the MSO will reimburse the New PC for
physician licensure fees, board certification fees, costs of membership in
professional associations and societies for Practice Providers, professional
liability insurance for the Practice Providers, continuing professional
education costs for Practice Providers, including travel and related expenses,
and charitable contributions. The New PC and the MSO agree that the aggregate
maximum annual amount shall be $5,000.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal
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monthly statement within twenty (20) days after the end of each month and a
quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other materials reasonably related to
the carrying out of the business purposes of the New PC, including all
stationery, printing and postage costs in connection therewith. In connection
with such marketing plan, the MSO shall advise Dr. Feldman and the Orthodontists
(if any) on establishing and maintaining a plan for patients' payments for
orthodontic services on an installment plan basis. All marketing activities
hereunder shall be conducted in compliance with all applicable Laws governing
advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide and pay for all business
and other licenses and permits as necessary to operate the New PC except those
related to licensure and certifications of the Practice Providers. The MSO shall
prepare and file all reports, forms and returns required by Law in connection
with workers' compensation, unemployment insurance, social security and other
similar Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office property
damage and liability, including business interruption insurance, not including
professional liability insurance (which shall be and remain the responsibility
of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Feldman and the
Orthodontists (if
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any) shall keep the MSO informed of retirement goals on an ongoing basis. Upon
request of the New PC, the MSO will conduct a search for an appropriate
orthodontist and other professionals (collectively, "Practice Associates") for
the purposes of accommodating practice growth, reducing doctor work schedule, or
planned retirement. Such search shall include use by the MSO of a national
journal advertising program and networking in the profession to locate
appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Feldman and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Feldman and such
Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Feldman and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Feldman and the
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr. Feldman
and each Orthodontist who provides orthodontic services to patients is licensed
by the State. In the event that any disciplinary, medical malpractice or other
actions are initiated against Dr. Feldman or any Orthodontist or other Practice
Provider, the New PC shall immediately inform the MSO of such action and the
underlying facts and circumstances subject to such confidentiality agreement or
arrangements as the New PC and
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the MSO shall mutually determine at or prior to the time of such disclosure. The
New PC agrees to cooperate with and participate in quality assurance/utilization
review programs established by the MSO or mandated by accreditation and
licensure standards applicable to the practice of orthodontics. Deficiencies
discovered in the performance of any personnel or in the quality of professional
services shall be reported immediately to the MSO, and appropriate steps shall
be taken by the New PC at once to remedy such deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such records shall be sufficient to
enable the MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The MSO shall
reimburse the New PC for such expenses in accordance with the Approved Budget.
The New PC shall ensure that Dr. Feldman and all the Orthodontists employed by
the New PC participate in such continuing education as is necessary for Dr.
Feldman and such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Feldman and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Feldman and each Orthodontist associated
with the New PC devote their full time and attention, unless other specific
provisions are made in writing and mutually agreed upon by the MSO and New PC.
The New PC will cause Dr. Feldman and each individual Orthodontist who now is or
hereafter becomes affiliated with the New PC to enter into a written employment
agreement (the "Employment Agreement") satisfactory in form and substance to the
MSO, pursuant to which Dr. Feldman or the Orthodontist shall agree not to
establish, operate or provide orthodontic or dental services, without the prior
written consent of both the New PC and the MSO, at any office or facility other
than the Orthodontic Office. In addition, such Employment Agreement shall
provide by its own terms or by a separate agreement that if Dr. Feldman's or
such Orthodontist's employment shall terminate for any reason during the Term of
this Agreement, for a period of 24 months after the termination of Dr. Feldman's
or such Orthodontist's Employment Agreement with the New PC, Dr. Feldman or such
Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the New PC and the
MSO, at any office practice or facility whatsoever providing services similar to
those provided by the New PC at any orthodontic office within a fifteen (15)
mile radius. Such Employment Agreement (or separate
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agreement) shall also provide, among other things, that in the event of a breach
of Dr. Feldman's or the Orthodontist's agreement not to compete with the New PC
provided for in such Employment Agreement (or separate agreement), the MSO shall
be entitled to receive, in addition to other remedies and not by way of an
election of remedies, liquidated damages equaling the greater of: (a) Dr.
Feldman's or such Orthodontist's income, as shown on the W-2 form prepared by
the New PC, for the most recent calendar year; or (b) $300,000. Such payment
shall be made to the MSO by the New PC immediately following receipt of the
payment from Dr. Feldman or the breaching Orthodontist by the New PC. Each of
the MSO and OMEGA shall be expressly named as a third-party beneficiary to such
agreements between the New PC and Dr. Feldman and each Orthodontist and the
rights and remedies of the MSO and OMEGA thereunder or otherwise in respect of
the restrictive covenants set forth in such agreements shall survive termination
of this Agreement.
3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its shareholders, directors, officers, affiliates, partners,
shareholders and independent contractors to immediately return to the MSO all
Confidential Information, and the New PC will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The New PC further
expressly acknowledges and agrees that any such use, appropriation or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the MSO and OMEGA, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the MSO and OMEGA, in addition to any other
remedies or damages available to either or both of them, shall be entitled to
injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude the MSO and OMEGA from
other remedies which may be available to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of
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orthodontic services shall be separate and independent from the provision of
administrative, management and support services by the MSO. Thus, the New PC
shall have sole and absolute control of the delivery of all professional
services and treatment rendered to patients at the Orthodontic Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises shall
be subject to all of the terms and conditions of the Master Lease. In the
event of the termination of the MSO's interest as lessee under the Master
Lease for any reason, then the sublease created hereby shall simultaneously
terminate, unless the New PC assumes the obligations under the Master Lease
in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions
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of this Section 5.1(b) and Exhibit "A," shall be the complete terms and
conditions of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its terms,
this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms thereof,
the MSO shall notify the New PC, at least 30 days prior to the expiration
of the time for exercising such option, of the MSO's intention to renew or
not to renew such term. If the MSO determines not to renew such term, the
MSO shall provide or arrange for the provision of comparable office space
(the "Substitute Orthodontic Office") within a radius of 15 miles of the
Orthodontic Office, which Substitute Orthodontic Office shall be subject to
the approval of the New PC (which approval shall not be unreasonably
withheld or delayed). The lease or sublease for such Substitute Orthodontic
Office, as applicable, shall be substituted for the lease described on
Exhibit A hereto and all references to the "Master Lease" shall thereafter
be applicable to the lease or sublease for the Substitute Orthodontic
Office for purposes of this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New
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PC agrees that it will use its best efforts to prevent damage, excessive wear,
and breakdown of all such leasehold improvements, fixtures, furniture,
furnishings and equipment, and shall advise the MSO of any and all needed
repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontics.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services
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contemplated hereunder, that the agreed compensation is not excessive. The New
PC acknowledges that the compensation arrangement is reasonable under the
circumstances noted herein and has executed an Affidavit attesting to this fact
which is attached hereto and incorporated herein as Exhibit C. In consideration
of the foregoing, the parties agree that the monthly Management Fees payable to
the MSO by the New PC for services rendered pursuant to this Agreement shall be
reviewed and subject to adjustment at the close of each year of the Term of this
Agreement based upon industry standards of practice and the MSO's costs in
performing the required services. If the parties cannot agree within thirty (30)
days prior to the close of any such year on the terms of any adjustment to the
Management Fees for the following year, then the then existing Management Fees
shall remain in effect. The New PC specifically agrees that the MSO may defer
actual receipt of its Management Fees and/or advance monies for purposes of
managing the New PC's cash flow, and the MSO may repay itself such advances or
pay said deferred Management Fees when it deems appropriate.
ARTICLE 7
SECURITY INTEREST
7.1 As assurance and collateral security for the payment of the monthly
Management Fees owed to the MSO pursuant to this Agreement and any funds
advanced by the MSO to or on behalf of the New PC pursuant to this Agreement and
for the faithful and timely performance of all the covenants and conditions to
be performed by the New PC under this Agreement, the New PC hereby pledges,
grants, bargains, assigns and transfers to the MSO a security interest, pursuant
to the Uniform Commercial Code of the State, in and to all Practice Revenue and
accounts receivable of patients of the New PC, together with all proceeds
thereof (collectively, the "Collateral"), and further agrees not to pledge,
assign, transfer or convey any of the Collateral or any proceeds therefrom,
without the prior written consent of the MSO, except to affiliates of the MSO.
Concurrent with the execution of this Agreement, the New PC shall execute a
Security Agreement, similar in form and content as that attached hereto as
Exhibit D and incorporated herein by this reference in order that the MSO may
perfect its interest in the Collateral. The New PC expressly agrees to execute
any appropriate UCC-1 Financing Statement and UCC-1 Fixture filings, if so
requested in writing by the MSO.
7.2 As assurance and collateral security for the payment of the monies owed
by OMEGA to Dr. Feldman as evidenced by the Purchase Note (as defined in the
Affiliation Agreement), OMEGA hereby pledges, grants, bargains, assigns and
transfers to Dr. Feldman a security interest, pursuant to the Uniform Commercial
Code of the State, in and to all leasehold improvements, fixtures, furnishings,
furniture and equipment now or hereafter located at the Orthodontic Offices
(collectively, the "Office Collateral"), and further agrees not to pledge,
assign, transfer or convey any of the Office Collateral or any proceeds
therefrom, without the prior written consent of Dr. Feldman, except to
affiliates or subsidiaries of OMEGA. Concurrent with the execution of this
Agreement, OMEGA shall execute a Security Agreement, similar in form and content
as that attached hereto as Exhibit D and incorporated herein by this reference
in order that Dr. Feldman may perfect his interest in the Office Collateral.
OMEGA expressly agrees to execute any appropriate UCC-1 Financing Statement and
UCC-1 Fixture filings, if so requested in writing by Dr. Feldman.
ARTICLE 8
COVENANTS
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8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr. Feldman
and the Orthodontists (if any) (to serve the orthodontic needs of the patients
of the New PC. The New PC covenants to monitor rigorously utilization and
quality of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
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8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Feldman and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Deductibles with respect to such policies shall not be MSO
Expenses. The MSO shall reimburse the New PC for premiums in accordance with the
Approved Budget. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Feldman and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Feldman's or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
Dr. Feldman or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the New PC and Dr. Feldman or the Orthodontist, and the New PC hereby
covenants with the MSO to enforce such provisions relating to the tail insurance
coverage or to provide such coverage at the expense of the New PC or Dr. Feldman
or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits
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and obligations (including reasonable attorneys' fees), whether or not covered
by insurance, caused or asserted to have been caused, directly or indirectly, by
or as a result of the performance of orthodontic services or the performance of
any intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written notice
thereof has been given to the MSO by the New PC, the New PC may terminate
this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call Option and Successor Designation Agreement") dated as of even date
herewith, by and among the New PC, Dr. Feldman and the Orthodontists (if any),
OMEGA and the MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof , or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
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(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall materially default in the performance of
any other duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Feldman or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Dr. Feldman or
such Orthodontist to cure such breach or default within any applicable grace
period therefor, the MSO may give written notice of the immediate termination of
this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC; provided, however, that all contracts or fees set for services on behalf of
the New PC will be subject to final approval and acceptance by the New PC.
Additionally, the New PC hereby irrevocably appoints the MSO (and its designees)
its authorized agent and lawful attorney-in-fact to collect all bills and
accounts receivable for professional fees, charges and other amounts and
authorizes the MSO through its designees to take possession of all checks, money
orders and similar instruments received as payment of receivables to be
deposited into the New PC Account. The New PC hereby irrevocably appoints the
MSO as the New PC's attorney-in-fact, with full power and authority in the place
and stead of the New PC, in the MSO's discretion, to endorse in the name of the
New PC any checks, payments, notes, insurance payments and money orders, to
withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are irrevocable. Third
parties and entities and persons not a party to this Agreement are entitled to
rely on the foregoing attorneys-in-fact and an affidavit of the MSO attesting
thereto. The
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acceptance of this appointment by the MSO shall not obligate it to perform any
duty or covenant required to be performed by the New PC under or by virtue of
this Agreement. Notwithstanding the foregoing powers of attorney, the New PC
shall at any time, on the request of the MSO, sign financing statements,
security agreements or other agreements necessary or advisable to accomplish the
purpose of this Agreement. Upon the New PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is authorized as
the agent of the New PC to sign any such instruments. The New PC may review all
deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and disbursements as kept by the MSO in performing the
MSO's obligations under this Agreement, and the New PC may copy any or all such
records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Feldman or any of its Orthodontists (if any)
and other Practice Providers, shall have complete control and supervision over
the professional aspects of the New PC's practice, as well as the provision of
all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The
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MSO may, however, advise the New PC as to the relationship between its
performance of orthodontic functions and the overall administrative and business
functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from seeking
a preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject to
the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which describe how those
amounts are to be calculated, however, shall be subject to the provisions
of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement in
accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
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15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, California 91367
Attn: Scott E. Feldman, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's or parties' (as
the case may be) written approval; provided, however, the foregoing shall not
apply to information which is required to be disclosed by Law, including federal
or state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party,
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but the same shall be distinct, separate and cumulative and may be exercised
from time to time as often as occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any mediation or arbitration or other legal action
or proceeding is brought to enforce this Agreement, because of any alleged
breach hereof, or for a declaration of any rights and obligations hereunder, the
prevailing party in such mediation or arbitration, action or proceeding shall be
entitled to recover its costs incurred therein, including reasonable attorneys'
fees, in addition to any other relief to which it may be entitled, all as
determined and awarded by the parties in such mediation or by the arbitrator or
court as part of its judgment or decision therein, as the case may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue,
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and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written consent
of both parties.
15.14 Severability. In the event any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one or
more defaults, if any, on the part of the other party, shall not be construed to
operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By:_______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
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SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Scott E. Feldman, D.D.S.
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, CA 91367
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SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Feldman Attach]
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SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Sixty-Five Percent (65%) of the Practice Revenues, and the New
PC shall be entitled to Thirty-Five Percent (35%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing. At the
end of each twelve (12) month period during the Term the MSO shall provide the
New PC with an unaudited internal accounting of the MSO Expenses, prepared in
accordance with the accrual method of accounting. If the MSO Expenses as
reflected in such accounting as having been paid by the MSO are less than fifty
(50%) percent of the Practice Revenues for such twelve month period, fifty (50%)
percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
27
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Feldman Attach]
28
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Feldman Attach]
29
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
30
<PAGE>
AFFIDAVIT
I, Scott E. Feldman, D.D.S., declare:
I am an orthodontist, duly licensed in the State of California and I
practice through a professional corporation under the name ______________ (the
"New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired significant
knowledge as to the overhead costs incurred and gross receipts generated by
similar types of orthodontic offices. Further, I am fully aware of the
non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 1997, between the New
PC and Omega Orthodontics of Woodland Hills, Inc. (the "MSO") concerning the
duties, responsibilities and obligations undertaken by the MSO in managing and
operating all non-orthodontic aspects of the Orthodontic Office as contemplated
by the Agreement.
I have reviewed the prior operating financial statements of the orthodontic
office located at 6325 Topanga Canyon Boulevard, No. 424, Woodland Hills,
California 91367 and an operating budget and estimated income of the orthodontic
office, which, in my opinion, can reasonably be expected from the operation of
said office.
In my opinion, based upon my experience, the Management Fees of Sixty Five
Percent (65%) of "Practice Revenues" to be charged by the MSO as contemplated by
the Agreement, will afford it a reasonable but not excessive return for its
services rendered and obligations incurred. In addition, the New PC Thirty Five
Percent (35%) of "Practice Revenues" retained by the New PC, will provide
reasonable earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true and
correct to the best of my knowledge and belief.
Executed at ___________, ________ this ____ day of ___________________,
1997.
_______________________________
Scott E. Feldman, D.D.S.
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<PAGE>
STATE OF CALIFORNIA
___________________, ss ________________, 1997
Then personally appeared the above-named Scott E. Feldman, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
32
<PAGE>
EXHIBIT D
SECURITY AGREEMENTS
33
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, a California corporation (the "New PC"), and
Scott E. Feldman, D.D.S. ("Dr. Feldman") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Woodland Hills, Inc., a
Delaware corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Feldman shall cause the New PC
to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
34
<PAGE>
obligations of a secured party under the Uniform Commercial Code as adopted in
the state of California (the "State"). Such rights shall include, without
limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
35
<PAGE>
B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Woodland Hills, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, CA 91367
Attn: Scott E. Feldman, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
36
<PAGE>
10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
WOODLAND HILLS , INC.
By:____________________________ By:__________________________
Name: Name:
Title: Title:
DR. FELDMAN:
_______________________________
Scott E. Feldman, D.D.S.
38
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by OMEGA Orthodontics, a Delaware corporation ("OMEGA"), and Scott E.
Feldman, D.D.S. ("Dr. Feldman") who is duly licensed to practice orthodontics in
the State, with reference to the following facts:
WHEREAS, pursuant to an Affiliation Agreement (the "Affiliation Agreement")
dated ________ __, 1997 by and between Dr. Scott E. Feldman D.D.S., M.S. (the
"Orthodontic Entity") and Dr. Feldman, and the Management Services Agreement
(the "Agreement"), dated as of the date hereof, between the New PC and the MSO,
OMEGA, as assurance and collateral security for the payment of the monies owned
to Dr. Feldman under the Purchase Note (as defined in the Affiliation
Agreement), (the "Obligations"), OMEGA agreed to pledge, grant, bargain, assign
and transfer to Dr. Feldman a security interest, pursuant to the Uniform
Commercial Code of the State, in and to all leasehold improvements, fixtures,
furnishings, furniture and equipment now or hereafter located at the Orthodontic
Offices (collectively, the "Office Collateral");
WHEREAS, OMEGA is obligated as a condition to Dr. Feldman's performance
under the Affilation and the Agreement to execute and deliver this Security
Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by OMEGA of the Obligations and any and all amounts payable under this Security
Agreement (collectively, the "Secured Obligations"), OMEGA hereby pledges,
grants, bargains, assigns and transfers to Dr. Feldman a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all leasehold
improvements, fixtures, furnishings, furniture and equipment now or hereafter
located at the Orthodontic Offices. Dr. Feldman may at his option file a
financing statement (Form UCC-1) in order to perfect his security interest
hereunder.
2. Representations and Warranties. OMEGA represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person, other than right to
transfer the Collateral to the MSO.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the amounts due under the Purchase Note, Dr. Feldman shall
release his security interest hereunder, and will deliver to OMEGA a release.
4. Realization of Collateral. Dr. Feldman shall have, with respect to the
Collateral, the rights and obligations of a secured party under the Uniform
Commercial Code as adopted in the state of California (the "State"). Such rights
shall include, without limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
39
<PAGE>
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as Dr. Feldman may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. OMEGA shall at any time on the request of Dr. Feldman, sign Financing
Statements, security agreements or other agreements with respect to any
Collateral. Upon OMEGA's failure to sign said Financing Statements, security
agreements or other agreements, Dr. Feldman is authorized as the agent of the
OMEGA to sign any such instruments. Upon the request of Dr. Feldman, OMEGA
agrees to pay all filing fees and to reimburse Dr. Feldman on demand for all
costs and expenses of any kind (including, without limitation, legal fees)
incurred in any way in connection with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the Dr. Feldman may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of OMEGA. Dr. Feldman agrees,
however, that the OMEGA shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, Dr. Feldman shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. Dr. Feldman may have resort to the
Collateral or any portion thereof with no requirements on the part of Dr.
Feldman to proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by Dr. Feldman in the following order:
A. To the payment of the costs and expenses of collection incurred by Dr.
Feldman, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the Dr.f Feldman in connection
therewith;
B. To the payment of the whole amount then owing and unpaid under the
Purchase Note;
C. To the payment to OMEGA of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of Dr. Feldman
with respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
40
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Notices to OMEGA shall be given at:
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by OMEGA to Dr. Feldman from
time to time in writing.
41
<PAGE>
Notices to Dr. Feldman shall be given at:
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, CA 91367
Attn: Scott E. Feldman, D.D.S.
or other such addresses as may be delivered by Dr. Feldman to OMEGA from
time to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
10. Additional Documents. OMEGA agrees that it will duly execute and
deliver to Dr. Feldman any additional documents which may be reasonably
necessary to give effect fully to the security interest granted to Dr. Feldman
hereunder, including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
OMEGA:
OMEGA ORTHODONTICS INC.
By:____________________________
Name:
Title:
DR. FELDMAN:
_______________________________
Scott E. Feldman, D.D.S.
43
<PAGE>
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A.Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals
or the American Arbitration Association ("AAA"), with the assistance of CPR or
AAA, unless the parties agree otherwise in finding a mutually acceptable
mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR or AAA.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR or AAA.
B. Mediation procedures
44
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1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the concurrence of
the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party to
this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the mediator and
documents subpoenaed.
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9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes or comparable AAA rules. The arbitration shall be held in
Woodland Hills, California. The sole arbitrator shall be agreed upon by the
parties within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR or AAA. A qualified
arbitrator is one who is familiar with the principal subject matter of the
issues to be arbitrated such as by way of example, healthcare services industry
matters, management consulting services generally or business law/corporate
matters generally. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator shall not have the
authority to award multiple, punitive or consequential damages under any
circumstances.
46
Exhibit 10.4
MANAGEMENT SERVICES AGREEMENT
BETWEEN
_____________________________
(the "New PC")
AND
Omega Orthodontics of Austin, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................7
2.12 Marketing.................................................................7
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................8
2.19 Practice Transition and Associate Selection...............................8
ARTICLE 3 DUTIES OF THE NEW PC................................................9
3.1 General....................................................................9
3.2 Employment of the Orthodontists and Rendering of Patient Care..............9
3.3 Professional Services......................................................9
3.4 Records...................................................................10
3.5 Professional Expenses.....................................................10
3.6 Professional Liability Insurance..........................................10
3.7 Employment Agreement......................................................10
3.8 Confidentiality...........................................................11
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION.....................................12
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................14
5.3. No Warranty.............................................................15
ARTICLE 6 COMPENSATION.......................................................16
ARTICLE 7 SECURITY INTEREST..................................................16
ARTICLE 8 COVENANTS..........................................................17
8.1 New PC's Covenants........................................................17
8.2 MSO's Covenants...........................................................18
ARTICLE 9 INSURANCE AND INDEMNITY.............................................18
9.1 Insurance to be Maintained by the New PC..................................18
9.2 Insurance to be Maintained by the MSO.....................................18
9.3 Tail Insurance Coverage...................................................18
9.4 Additional Insureds.......................................................19
9.5 Indemnification...........................................................19
ARTICLE 10 TERMINATION.......................................................19
10.1 Termination by the New PC................................................19
10.2 Termination by MSO.......................................................20
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................21
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................21
ARTICLE 13 MISCELLANEOUS.....................................................21
13.1 Access to Records........................................................22
13.2 Patient Records..........................................................22
13.3 The New PC's Control Over the Orthodontic Practice.......................22
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................22
14.1 Alternative Dispute Resolution...........................................22
14.2 Waiver of Jury.................................Error! Bookmark not defined.
ARTICLE 15 GENERAL PROVISIONS................................................23
15.1 Notices..................................................................23
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15.2 Confidentiality..........................................................23
15.3 Contract Modifications for Prospective Legal Events......................24
15.4 Remedies Cumulative......................................................24
15.5 No Obligation to Third Parties...........................................24
15.6 Entire Agreement.........................................................24
15.7 Assignment...............................................................24
15.8 Attorneys' Fees..........................................................24
15.9 Governing Law............................................................25
15.10 Events Excusing Performance.............................................25
15.11 Compliance with Applicable Laws.........................................25
15.12 Language Construction...................................................25
15.13 Amendments..............................................................25
15.14 Severability............................................................25
15.15 No Waiver...............................................................25
15.16 Captions................................................................25
15.17 Counterparts............................................................25
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C INTENTIONALLY OMITTED
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________, 1997,
by and between ____________________, Inc., a professional corporation (the "New
PC") incorporated under the laws of the State of Texas (the "State"), and OMEGA
Orthodontics of Austin, Inc., a Delaware corporation (the "MSO"), and OMEGA
ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Jeff S. Zapalac, D.D.S. ("Dr. Zapalac") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Jeff S. Zapalac,
D.D.S., M.S., Inc., a Texas professional corporation owned by Dr. Zapalac was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Zapalac and any and all other orthodontists who are or become affiliated with
the New PC as of or following the date and who are or become subsequently named
on Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Zapalac and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
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1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide and the MSO shall provide the New PC
with comprehensive practice management, financial and marketing services, and
such facilities, equipment, and support personnel as are reasonably required by
the New PC to operate its orthodontic practice at the Orthodontic Offices, as
determined by the MSO in consultation with the New PC. The New PC hereby
appoints the MSO as the sole and exclusive business manager of the New PC and
agrees that the MSO shall have all power and authority reasonably necessary to
manage the non-orthodontic business affairs of the New PC and carry out the
MSO's orthodontic duties under this Agreement, subject to the requirements of
the applicable provisions of State law relating to the practice of orthodontics.
The MSO may perform some or all of its services at a location other than at the
Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services
(a) The MSO shall supply secretarial, reception, maintenance, front office,
skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Zapalac and
the Orthodontists (if any) and other individuals who are employees of the New PC
or otherwise under contract with the New PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the New PC or otherwise
required by applicable "Laws" (as defined in Section 2.6 below) to be employees
of the New PC to provide services to patients of the Practice. A list of all
Practice Providers and their relationship to the New PC is set forth as Exhibit
B attached hereto and incorporated herein by reference. Prior to making any
changes in the list of Practice Providers, the New PC shall use its best efforts
to consult with the MSO. The New PC also shall use its best efforts to consult
with the MSO with regard to the terms of contracts entered into between the New
PC and the Practice Providers and the terms and conditions of their employment
or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr. Zapalac
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and the Orthodontists (if any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and comprising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct costs
payable to Dr. Zapalac and the Orthodontists (if any) and the other
Practice Providers of the New PC, and all withholding taxes and assessments
payable to Federal, state and local governments in connection with the
employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6 hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of the
MSO providing services to the New PC hereunder (but excluding Dr. Zapalac
and all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or any
corporation affiliated with the MSO other than the kind of items listed
above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as utility
expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists to
become employed by the New PC or other orthodontic entities to merge with
the New PC, actual out-of-pocket expenses of the MSO personnel working on a
specified employment arrangement or merger, whether or not such employment
arrangement or merger is consummated;
(7) Reimbursement to Dr. Zapalac for "Approved Entertainment Expenses"
and "Approved Liability Insurance Expenses", "Approved Automobile Expenses"
and "Approved Educational Expenses" (as each are defined below); and
(8) Other expenses incurred by the MSO in carrying out its obligations
under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Zapalac and the Orthodontists (if any) and the other Practice Providers, or
the costs of preparing Federal, state or local tax returns thereof;
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(2) Salaries, benefits and other direct costs of employing Dr. Zapalac
and the Orthodontists (if any) and the other Practice Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in professional associations and societies for Practice
Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof, other than Approved Liability
Insurance Expenses;
(5) Costs of continuing professional education for Practice Providers,
including travel and related expenses, other than Approved Education
Expenses;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC other than as otherwise expressly
provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of any
policy;
(8) Direct personal expenses of the Practice Providers of a kind which
the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other expenses
which are personal in nature) and other than Approved Entertainment
Expenses, Approved Liability Insurance Expenses, Approved Automobile
Expenses and Approved Educational Expenses; and
(9) Payment of or reimbursement for entertainment expenses or
automobile expenses other than Approved Automobile Expenses and Approved
Entertainment Expenses;
(10) Charitable contributions by the New PC; and
(11) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
As used in this Agreement, "Approved Entertainment Expenses" means expenses
incurred by Dr. Zapalac for the purpose of practice development that are
approved by Omega. As used in this Agreement, "Approved Liability Insurance
Expenses" means, on annual basis, an amount equal to the amount incurred for Dr.
Zapalac's liability insurance as shown in the September 30, 1996 statement of
financial and operating information prepared by Dr. Zapalac for Omega (the
"Report"). As used in this Agreement "Approved Automobile Expenses" means, on an
annual basis, an amount equal to the amount incurred by Dr. Zapalac for his
automobile as shown in the Report. As used in this Agreement "Approved
Educational Expenses" means, on an annual basis, an amount equal to the amount
incurred by Dr. Zapalac for his profession and continuing education, including
travel and related expenses, as shown in the Report.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the
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MSO shall obtain on behalf of the New PC information with regard to the ability
of patients to pay for the services to be rendered by the New PC. The MSO shall
collect all information and determine, to the best of its ability, whether or
not patients can pay for services rendered by the New PC, either in cash or by
insurance. Such determination shall be subject to the reasonable approval by the
New PC, and as between the New PC and the MSO, the New PC shall bear the risk of
claims by potential patients who may be denied credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other materials reasonably related to
the carrying out of the business purposes of the New PC, including all
stationery, printing and postage costs in connection therewith. In connection
with such marketing plan, the MSO shall advise Dr. Zapalac and the Orthodontists
(if any) on establishing and maintaining a plan for patients' payments for
orthodontic services on an installment plan basis. All marketing activities
hereunder shall be conducted in compliance with all applicable Laws governing
advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice
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Providers. The MSO shall prepare and file all reports, forms and returns
required by Law in connection with workers' compensation, unemployment
insurance, social security and other similar Laws with respect to the MSO's
employees.
2.18 Insurance. The MSO shall provide and pay for customary office property
damage and liability, including business interruption insurance, not including
professional liability insurance (which shall be and remain the responsibility
of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Zapalac and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
Notwithstanding the foregoing provisions of this Section 2.19, the parties
agree that, with respect to the retirement of Dr. Zapalac, notice of which the
parties agree is hereby given, the following provisions shall apply:
(a) Dr. Zapalac and the MSO shall begin promptly upon execution of this
Agreement to search for a qualified Practice Associate to replace Dr. Zapalac
and each shall use all reasonable efforts in good faith to locate candidates for
such position;
(b) The MSO will screen all candidates, whether located by Dr. Zapalac or
the MSO, will not unreasonably withhold its approval of any qualified candidate
located by Dr. Zapalac and will present appropriate qualified candidates for
final selection by the New PC;
(c) The New PC shall be responsible for interviewing and selecting each
candidate to replace Dr. Zapalac from the candidates presented by the MSO and,
once a candidate is selected, Dr. Zapalac shall use all reasonable efforts to
see that such candidate successfully completes a six month trial period with the
New PC; and
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(d) It is understood that at the end of this trial period, either the New
PC or the candidate to replace Dr. Zapalac may terminate the relationship. If
the relationship is terminated, the search process outlined in clauses (a)
through (d) of this Section 2.19 shall begin again. Any candidate to replace Dr.
Zapalac who is accepted by the New PC shall be an employee of the Practice (if
so employed) and not of the MSO. The MSO will confer with the New PC on an
appropriate salary/work-in arrangement for such candidate and the final
arrangements shall be determined by the New PC and the Orthodontists (if any)
shall keep the MSO informed of retirement goals on an ongoing basis. Upon
request of the New PC, the MSO will conduct a search for an appropriate
orthodontist and other professionals (collectively, "Practice Associates") for
the purposes of accommodating practice growth, reducing doctor work schedule, or
planned retirement. Such search shall include use by the MSO of a national
journal advertising program and networking in the profession to locate
appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
2.19 OMEGA. OMEGA shall cause the MSO to comply with its obligations under
this Article 2 and this Agreement.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Zapalac and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Zapalac and such
Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Zapalac and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr.
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Zapalac and the Orthodontists (if any), and no other orthodontist shall be
permitted to use or occupy the Orthodontic Offices. The New PC shall provide
professional services to patients hereunder in compliance at all times with
ethical standards and Laws applying to the orthodontic profession. The New PC
shall ensure that Dr. Zapalac and each Orthodontist who provides orthodontic
services to patients is licensed by the State. In the event that any
disciplinary, medical malpractice or other actions are initiated against Dr.
Zapalac or any Orthodontist or other Practice Provider, the New PC shall
immediately inform the MSO of such action and the underlying facts and
circumstances subject to such confidentiality agreement or arrangements as the
New PC and the MSO shall mutually determine at or prior to the time of such
disclosure. The New PC agrees to cooperate with and participate in quality
assurance/utilization review programs established by the MSO or mandated by
accreditation and licensure standards applicable to the practice of
orthodontics. Deficiencies discovered in the performance of any personnel or in
the quality of professional services shall be reported immediately to the MSO,
and appropriate steps shall be taken by the New PC at once to remedy such
deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such records shall be sufficient to
enable the MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Zapalac and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Dr. Zapalac and
such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Zapalac and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Zapalac and each Orthodontist associated
with the New PC devote their full time and attention, unless other specific
provisions are made in writing and mutually agreed upon by the MSO and New PC.
The New PC will cause Dr. Zapalac and each individual Orthodontist who now is or
hereafter becomes affiliated with the New PC to enter into a written employment
agreement (the "Employment Agreement") satisfactory in form and substance to the
MSO and Dr. Zapalac, pursuant to which Dr. Zapalac or the Orthodontist shall
agree not to establish, operate or provide orthodontic or dental services,
without the prior written consent of both the New PC and the MSO, at any office
or facility other than the Orthodontic Office. In addition, such Employment
Agreement shall provide by its own
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terms or by a separate agreement that if Dr. Zapalac's or such Orthodontist's
employment shall terminate for any reason during the Term of this Agreement,
including without limitation termination upon the sale of the New PC, for a
period of 24 months after the termination of Dr. Zapalac's or such
Orthodontist's Employment Agreement with the New PC, Dr. Zapalac or such
Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the New PC and the
MSO, at any office practice or facility whatsoever providing services similar to
those provided by the New PC at any orthodontic office within a ten (10) mile
radius. Such Employment Agreement (or separate agreement) shall also provide,
among other things, that in the event of a breach of Dr. Zapalac's or the
Orthodontist's agreement not to compete with the New PC provided for in such
Employment Agreement (or separate agreement), the MSO shall be entitled to
receive, in addition to other remedies and not by way of an election of
remedies, liquidated damages equaling the greater of: (a) Dr. Zapalac's or such
Orthodontist's income, as shown on the W-2 form prepared by the New PC, for the
most recent calendar year; or (b) $300,000. Such payment shall be made to the
MSO by the New PC immediately following receipt of the payment from Dr. Zapalac
or the breaching Orthodontist by the New PC. Each of the MSO and OMEGA shall be
expressly named as a third-party beneficiary to such agreements between the New
PC and Dr. Zapalac and each Orthodontist and the rights and remedies of the MSO
and OMEGA thereunder or otherwise in respect of the restrictive covenants set
forth in such agreements shall survive termination of this Agreement.
3.8 Confidentiality. (a) The New PC agrees and acknowledges that all
materials provided by the MSO to the New PC constitute "Confidential
Information" and are disclosed in confidence and with the understanding that it
constitutes valuable business information developed by the MSO with the
assistance of OMEGA at great expenditures of time, effort and money. The New PC
further agrees that it shall not, directly or indirectly, without the express
prior written consent of the MSO, use or disclose such Confidential Information
for any purpose other than in connection with the services to be rendered
hereunder. The New PC further agrees: (i) to keep strictly confidential and hold
in trust all Confidential Information and not disclose such Confidential
Information to any third party, including its shareholders, directors, officers,
affiliates, partners, employees and independent contractors without the express
prior written consent of the MSO; and (ii) to impose this obligation of
confidentiality on its shareholders, directors, officers, affiliates, partners,
employees and independent contractors. The New PC acknowledges that the
disclosure of Confidential Information to it by the MSO is done in reliance upon
its representations and covenants in this Agreement. Upon expiration or
termination of this Agreement by either party for any reason whatsoever, the New
PC shall immediately return and shall cause its shareholders, directors,
officers, affiliates, partners, shareholders and independent contractors to
immediately return to the MSO all Confidential Information, and the New PC will
not, and will cause its affiliates, partners, employees and independent
contractors not to, thereafter use, appropriate, or reproduce such Confidential
Information. The New PC further expressly acknowledges and agrees that any such
use, appropriation or reproduction of any such Confidential Information by any
of the foregoing after the expiration or termination of this Agreement will
result in irreparable injury to the MSO and OMEGA, that the remedy at law for
the foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, the MSO and OMEGA, in addition to
any other remedies or damages available to either or both of them, shall be
entitled to injunctive or other equitable relief without the necessity of
proving actual damages but such rights to relief shall not preclude the MSO and
OMEGA from other remedies which may be available to either or both of them
hereunder.
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(b) The MSO agrees and acknowledges that all materials provided by the New
PC constitute "Confidential Information" and are disclosed in confidence and
with the understanding that, except for "Required Disclosure" (as defined below)
it constitutes valuable business information developed by the New PC at great
expenditures of time, effort and money. The MSO further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
New PC, or as required by Required Disclosure, use or disclose such Confidential
Information for any purpose other than in connection with the services to be
rendered hereunder. The MSO further agrees that except as required by Required
Disclosure it shall: (i) keep strictly confidential and hold in trust all
Confidential Information and not disclose such Confidential Information to any
third party, including its shareholders, directors, officers, affiliates,
partners, employees and independent contractors without the express prior
written consent of the New PC; and (ii) impose this obligation of
confidentiality on its shareholders, directors, officers, affiliates, partners,
employees and independent contractors. The MSO acknowledges that the disclosure
of Confidential Information to it by the New PC is done in reliance upon its
representations and covenants in this Agreement. Upon expiration or termination
of this Agreement by either party for any reason whatsoever, the MSO shall
immediately return and shall cause its shareholders, directors, officers,
affiliates, partners, shareholders and independent contractors to immediately
return to the New PC all Confidential Information, and the MSO will not, and
will cause its affiliates, partners, employees and independent contractors not
to, thereafter use, appropriate, or reproduce such Confidential Information. The
MSO further expressly acknowledges and agrees that any such use, appropriation
or reproduction of any such Confidential Information by any of the foregoing
after the expiration or termination of this Agreement will result in irreparable
injury to the New PC and Dr. Zapalac and that the remedy at law for the
foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, the New PC and Dr. Zapalac, in
addition to any other remedies or damages available to either or both of them,
shall be entitled to injunctive or other equitable relief without the necessity
of proving actual damages but such rights to relief shall not preclude the New
PC and Dr. Zapalac from other remedies which may be available to either or both
of them hereunder. Notwithstanding anything to the contrary in this Section
3.8(b), the MSO and OMEGA shall be permitted to and shall disclose any
information, including Confidential Information, provided by the New PC, as
required by Required Disclosure. As used in this Agreement, "Required
Disclosure" means any disclosures required be made under Law, including federal
or state securities laws, or pursuant to court order, and any disclosures to
preserve the rights of the MSO and OMEGA under the Stock Put/Call Option and
Successor Designation Agreement.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to
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solicit patients on behalf of, the New PC, nor shall the MSO have any control
over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
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ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises shall
be subject to all of the terms and conditions of the Master Lease. In the
event of the termination of the MSO's interest as lessee under the Master
Lease for any reason, then the sublease created hereby shall simultaneously
terminate, unless the New PC assumes the obligations under the Master Lease
in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its terms,
this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms thereof,
the MSO shall notify the New PC, at least 30 days prior to the expiration
of the time for exercising such option, of
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the MSO's intention to renew or not to renew such term. If the MSO
determines not to renew such term, the MSO shall provide or arrange for the
provision of comparable office space (the "Substitute Orthodontic Office")
within a radius of fifteen (15) miles of the Orthodontic Office, which
Substitute Orthodontic Office shall be subject to the approval of the New
PC (which approval shall not be unreasonably withheld or delayed). The
lease or sublease for such Substitute Orthodontic Office, as applicable,
shall be substituted for the lease described on Exhibit A hereto and all
references to the "Master Lease" shall thereafter be applicable to the
lease or sublease for the Substitute Orthodontic Office for purposes of
this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
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(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontics.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. In consideration of the foregoing, the parties agree that the
monthly Management Fees payable to the MSO by the New PC for services rendered
pursuant to this Agreement shall be reviewed and subject to adjustment at the
close of each year of the Term of this Agreement based upon industry standards
of practice and the MSO's costs in performing the required services. If the
parties cannot agree within thirty (30) days prior to the close of any such year
on the terms of any adjustment to the Management Fees for the following year,
then the then existing Management Fees shall remain in effect. The New PC
specifically agrees that the MSO may defer actual receipt of its Management Fees
and/or advance monies for purposes of managing the New PC's cash flow, and the
MSO may repay itself such advances or pay said deferred Management Fees when it
deems appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the MSO pursuant to this Agreement and any funds
advanced by the MSO to or on behalf of the New PC pursuant to this Agreement and
for the faithful and timely performance of all the covenants and conditions to
be performed
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by the New PC under this Agreement, the New PC hereby pledges, grants, bargains,
assigns and transfers to the MSO a security interest, pursuant to the Uniform
Commercial Code of the State, in and to five hundred thousand dollars ($500,000)
of Practice Revenue and accounts receivable of patients of the New PC, together
with all proceeds thereof (collectively, the "Collateral"), and further agrees
not to pledge, assign, transfer or convey any of the Collateral or any proceeds
therefrom, without the prior written consent of the MSO, except to affiliates of
the MSO. Concurrent with the execution of this Agreement, the New PC shall
execute a Security Agreement, similar in form and content as that attached
hereto as Exhibit D and incorporated herein by this reference in order that the
MSO may perfect its interest in the Collateral. The New PC expressly agrees to
execute any appropriate UCC-1 Financing Statement and UCC-1 Fixture filings, if
so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr. Zapalac
and the Orthodontists (if any) (to serve the orthodontic needs of the patients
of the New PC. The New PC covenants to monitor rigorously utilization and
quality of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of ten (10) miles of the Orthodontic Office or of
such other orthodontic practice, without the MSO's prior written consent.
Teaching and/or consulting by Dr. Zapalac shall not be considered to violate
this Section 8.1(c).
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to
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prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a ten (10) mile
radius of the Orthodontic Offices, without the express written consent of the
New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Zapalac and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Zapalac and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Zapalac's or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
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Dr. Zapalac or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the New PC and Dr. Zapalac or the Orthodontist, and the New PC hereby
covenants with the MSO to enforce such provisions relating to the tail insurance
coverage or to provide such coverage at the expense of the New PC or Dr. Zapalac
or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall default in the performance of any
material duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written notice
thereof has been given to the MSO by the New PC, the New PC may terminate
this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call Option and Successor Designation Agreement") dated as of even date
herewith, by and among the New PC, Dr. Zapalac and the Orthodontists (if any),
OMEGA and the MSO.
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10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall default in the performance of any other
material duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Zapalac or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Dr. Zapalac or
such Orthodontist to cure such breach or default within any applicable grace
period therefor, the MSO may give written notice of the immediate termination of
this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
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ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
Unless and until there is an effective termination of this Agreement, the
New PC hereby designates the MSO (and its designees) its authorized agent and
lawful attorney-in-fact for purposes of depositing payments, paying accounts
payables, signing checks, negotiating and signing contracts for services or
goods, securing loans or incurring obligations on behalf of the New PC;
provided, however, that all contracts or fees set for services on behalf of the
New PC will be subject to final approval and acceptance by the New PC. Unless
and until there is an effective termination of this Agreement, the New PC hereby
appoints the MSO (and its designees) its authorized agent and lawful
attorney-in-fact to collect all bills and accounts receivable for professional
fees, charges and other amounts and authorizes the MSO through its designees to
take possession of all checks, money orders and similar instruments received as
payment of receivables to be deposited into the New PC Account. Unless and until
there is an effective termination of this Agreement, the New PC hereby appoints
the MSO as the New PC's attorney-in-fact, with full power and authority in the
place and stead of the New PC, in the MSO's discretion, to endorse in the name
of the New PC any checks, payments, notes, insurance payments and money orders,
to withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are revocable only upon
an effective termination of this Agreement. Third parties and entities and
persons not a party to this Agreement are entitled to rely on the foregoing
attorneys-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of this
Agreement. Notwithstanding the foregoing powers of attorney, the New PC shall at
any time, on the request of the MSO, sign financing statements, security
agreements or other agreements necessary or advisable to accomplish the purpose
of this Agreement. Upon the New PC's failure to sign said financing statements,
security agreements or other agreements, the MSO is authorized as the agent of
the New PC to sign any such instruments. The New PC may review all deposits and
expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
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13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and disbursements as kept by the MSO in performing the
MSO's obligations under this Agreement, and the New PC may copy any or all such
records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Zapalac or any of its Orthodontists (if any)
and other Practice Providers, shall have complete control and supervision over
the professional aspects of the New PC's practice, as well as the provision of
all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The MSO may, however, advise
the New PC as to the relationship between its performance of orthodontic
functions and the overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from seeking
a preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees
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owed by the New PC to the MSO hereunder, and such determination shall not
be subject to the provisions of this Section 14.1. Disputes as to the
proper interpretation of the provisions of this Agreement which describe
how those amounts are to be calculated, however, shall be subject to the
provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement in
accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
8430 Spicewood Springs Road
Austin, Texas 78759
Attn: Jeff S. Zapalac, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's or parties' (as
the case may be) written approval;
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provided, however, the foregoing shall not apply to information which is
required to be disclosed by Law, including federal or state securities laws, or
pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any arbitration or other legal action or
proceeding is brought to enforce this Agreement, because of any alleged breach
hereof, or for a declaration of any rights and obligations hereunder, the
prevailing party in such arbitration, action or proceeding shall be entitled to
recover its costs incurred therein, including reasonable attorneys' fees, in
addition to any other relief to which it may be entitled, all as determined and
awarded by the arbitrator or court as part of its judgment or decision therein,
as the case may be. If the parties agree to take any dispute under this
Agreement to mediation, the costs of the mediator and the
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mediation shall be borne equally by the parties hereto.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written consent
of both parties.
15.14 Severability. In the event any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one or
more defaults, if any, on the part of the other party, shall not be construed to
operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By: _______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF AUSTIN, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
26
<PAGE>
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Jeff S. Zapalac, D.D.S.
8430 Spicewood Springs Road
Austin, Texas 78759
27
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SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Zapalac Attach]
28
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Seventy-Five Percent (75%) of the Practice Revenues, and the New
PC shall be entitled to Twenty-Five Percent (25%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing. At the
end of each twelve (12) month period during the Term the MSO shall provide the
New PC with an unaudited internal accounting of the MSO Expenses, prepared in
accordance with the accrual method of accounting. If the MSO Expenses as
reflected in such accounting as having been paid by the MSO are less than sixty
(60%) percent of the Practice Revenues for such twelve month period, fifty (50%)
percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
29
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Zapalac Attach]
30
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Zapalac Attach]
31
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
32
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
33
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, a Texas corporation (the "New PC"), and Jeff
S. Zapalac, D.D.S. ("Dr. Zapalac") who is duly licensed to practice orthodontics
in the State and Omega Orthodontics of Austin, Inc., a Delaware corporation (the
"MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to Five Hundred
Thousand ($500,000) dollars in Practice Revenue and the accounts receivable of
patients of the New PC, together with all proceeds thereof (collectively, the
"Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Zapalac shall cause the New PC
to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
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obligations of a secured party under the Uniform Commercial Code as adopted in
the state of Texas (the "State"). Such rights shall include, without limitation,
the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
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B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Austin, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
8430 Spicewood Springs Road
Austin, Texas 78759
Attn: Jeff S. Zapalac, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
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10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
37
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
AUSTIN, INC.
By:____________________________ By:__________________________
Name: Name:
Title: Title:
DR. ZAPALAC:
_______________________________
Jeff S. Zapalac, D.D.S.
38
<PAGE>
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
either the Center for Public Resources, New York, New York ("CPR") Panels of
Neutrals, the American Arbitration Association ("AAA") or the Association of
Attorney Neutrals ("AAN"), with the assistance of such organization, unless the
parties agree otherwise in finding a mutually acceptable mediator.
5. Acquisition shall bear 50% and the New PC and Dr. Zapalac shall bear
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50% of the fees and costs of the mediator and any fees and costs of CPR, AAA or
AAN.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR, AAA or AAN.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
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remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
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C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration before AAA, AAN or CPR, to a qualified sole arbitrator in accordance
with the then current CPR Rules for Non-Administered Arbitration of Business
Disputes or comparable AAA or AAN rules. The sole arbitrator shall be agreed
upon by the parties within twenty (20) days after either party elects to submit
any issue to arbitration or, failing that, shall be selected by the organization
to whom the parties selected for arbitration. A qualified arbitrator is one who
is familiar with the principal subject matter of the issues to be arbitrated
such as by way of example, healthcare services industry matters, management
consulting services generally or business law/corporate matters generally.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances. If the
party initially raising the dispute to be resolved is New PC or Dr. Zapalac, the
arbitration shall be held in Boston, Massachusetts, and if the party initially
raising the dispute to be resolved is the MSO or OMEGA, the arbitration shall be
held in Austin, Texas.
42
Exhibit 10.5
MANAGEMENT SERVICES AGREEMENT
BETWEEN
----------------------------
(the "New PC")
AND
Omega Orthodontics of Elko, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM.................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................6
2.12 Marketing.................................................................6
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................7
2.19 Practice Transition and Associate Selection...............................7
ARTICLE 3 DUTIES OF THE NEW PC................................................8
3.1 General....................................................................8
3.2 Employment of the Orthodontists and Rendering of Patient Care..............8
3.3 Professional Services......................................................9
3.4 Records....................................................................9
3.5 Professional Expenses......................................................9
3.6 Professional Liability Insurance...........................................9
3.7 Employment Agreement.......................................................9
3.8 Confidentiality...........................................................10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION.....................................11
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................12
5.3. No Warranty.............................................................13
ARTICLE 6 COMPENSATION.......................................................14
ARTICLE 7 SECURITY INTERES...................................................14
ARTICLE 8 COVENANTS..........................................................15
8.1 New PC's Covenants........................................................15
8.2 MSO's Covenants...........................................................16
ARTICLE 9 INSURANCE AND INDEMNITY.............................................16
9.1 Insurance to be Maintained by the New PC..................................16
9.2 Insurance to be Maintained by the MSO.....................................16
9.3 Tail Insurance Coverage...................................................16
9.4 Additional Insureds.......................................................17
9.5 Indemnification...........................................................17
ARTICLE 10 TERMINATION.......................................................17
10.1 Termination by the New PC................................................17
10.2 Termination by MSO.......................................................18
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................19
ARTICLE 13 MISCELLANEOUS.....................................................19
13.1 Access to Records........................................................19
13.2 Patient Records..........................................................19
13.3 The New PC's Control Over the Orthodontic Practice.......................20
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................20
14.1 Alternative Dispute Resolution...........................................20
14.2 Waiver of Jury...........................................................21
ARTICLE 15 GENERAL PROVISIONS................................................21
15.1 Notices..................................................................21
15.2 Confidentiality..........................................................21
15.3 Contract Modifications for Prospective Legal Events......................22
15.4 Remedies Cumulative......................................................22
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15.5 No Obligation to Third Parties...........................................22
15.6 Entire Agreement.........................................................22
15.7 Assignment...............................................................22
15.8 Attorneys' Fees..........................................................22
15.9 Governing Law............................................................23
15.10 Events Excusing Performance.............................................23
15.11 Compliance with Applicable Laws.........................................23
15.12 Language Construction...................................................23
15.13 Amendments..............................................................23
15.14 Severability............................................................23
15.15 No Waiver...............................................................23
15.16 Captions................................................................23
15.17 Counterparts............................................................23
SCHEDULE 1 EQUIPMENT LIST
SCHEDULE 2 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C ORTHODONTIC PRACTICE'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________,
199____, by and between ____________________, Inc., a professional corporation
(the "New PC") incorporated under the laws of the State of Nevada (the "State"),
and OMEGA Orthodontics of Elko, Inc., a Delaware corporation (the "MSO"), and
OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and David T. Grove, D.M.D., M.S. ("Dr. Grove") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 199___, pursuant to which David T. Grove, LLC,
a Nevada, professional limited liability company owned by Dr. Grove was merged
into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO being
the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Grove and any and all other orthodontists who are or become affiliated with the
New PC as of or following the date and who are or become subsequently named on
Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Grove and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
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1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodonture. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodonitc Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services
(a) The MSO shall supply secretarial, reception, maintenance, front office,
skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance
in connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Grove and
the Orthodontists (if any) and other individuals who are employees of the New PC
or otherwise under contract with the New PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the New PC or otherwise
required by applicable "Laws" (as defined in Section 2.6 below) to be employees
of the New PC to provide services to patients of the Practice. A list of all
Practice Providers and their relationship to the New PC is set forth as Exhibit
B attached hereto and incorporated herein by reference. Prior to making any
changes in the list of Practice Providers, the New PC shall use its best efforts
to consult with the MSO. The New PC also shall use its best efforts to consult
with the MSO with regard to the terms of contracts entered into between the New
PC and the Practice Providers and the terms and conditions of their employment
or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr. Grove
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and the Orthodontists (if any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and comprising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct costs
payable to Dr. Grove and the Orthodontists (if any) and the other Practice
Providers of the New PC, and all withholding taxes and assessments payable
to Federal, state and local governments in connection with the employment
of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6 hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of the
MSO providing services to the New PC hereunder (but excluding Dr. Grove and
all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or any
corporation affiliated with the MSO other than the kind of items listed
above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as utility
expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists to
become employed by the New PC or other orthodontic entities to merge with
the New PC, actual out-of-pocket expenses of the MSO personnel working on a
specified employment arrangement or merger, whether or not such employment
arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its obligations
under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr. Grove
and the Orthodontists (if any) and the other Practice Providers, or the
costs of preparing Federal, state or local tax returns thereof;
(2) Salaries, benefits and other direct costs of employing Dr. Grove
and the Orthodontists (if any) and the other Practice Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in
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professional associations and societies for Practice Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof;
(5) Costs of continuing professional education for Practice Providers,
including travel and related expenses;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC other than as otherwise expressly
provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of any
policy;
(8) Direct personal expenses of the Practice Providers of a kind which
the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other expenses
which are personal in nature);
(9) Charitable contributions by the New PC; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other
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materials reasonably related to the carrying out of the business purposes of the
New PC, including all stationery, printing and postage costs in connection
therewith. In connection with such marketing plan, the MSO shall advise Dr.
Grove and the Orthodontists (if any) on establishing and maintaining a plan for
patients' payments for orthodontic services on an installment plan basis. All
marketing activities hereunder shall be conducted in compliance with all
applicable Laws governing advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice Providers. The MSO shall prepare
and file all reports, forms and returns required by Law in connection with
workers' compensation, unemployment insurance, social security and other similar
Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office property
damage and liability, including business interruption insurance, not including
professional liability insurance (which shall be and remain the responsibility
of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Grove and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
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After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
Notwithstanding the foregoing provisions of this Section 2.19, the parties
agree that, with respect to the retirement of Dr. Grove, notice of which the
parties agree is hereby given, the following provisions shall apply:
(a) Dr. Grove and the MSO shall begin promptly upon execution of this
Agreement to search for a qualified Practice Associate to replace Dr. Grove and
each shall use all reasonable efforts in good faith to locate candidates for
such position;
(b) The MSO will screen all candidates, whether located by Dr. Grove or the
MSO, will not unreasonably withhold its approval of any qualified candidate
located by Dr. Grove and will present appropriate qualified candidates for final
selection by the New PC;
(c) The New PC shall be responsible for interviewing and selecting each
candidate to replace Dr. Grove from the candidates presented by the MSO and,
once a candidate is selected, Dr. Grove shall use all reasonable efforts to see
that such candidate successfully completes a six month trial period with the New
PC; and
(d) It is understood that at the end of this trial period, either the New
PC or the candidate to replace Dr. Grove may terminate the relationship. If the
relationship is terminated, the search process outlined in clauses (a) through
(d) of this Section 2.19 shall begin again. Any candidate to replace Dr. Grove
who is accepted by the New PC shall be an employee of the Practice (if so
employed) and not of the MSO. The MSO will confer with the New PC on an
appropriate salary/work-in arrangement for such candidate and the final
arrangements shall be determined by the New PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Grove and all Orthodontists and the other Practice Providers and all orthodontic
care rendered to patients shall be rendered by Dr. Grove and such Orthodontists.
Additionally, the New PC shall be responsible for the professional supervision
of all other
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Practice Providers in their rendering of patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Grove and the Orthodontists and the other Practice
Providers acting under the supervision and control of the Dr. Grove and
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr. Grove
and each Orthodontist who provides orthodontic services to patients is licensed
by the State. In the event that any disciplinary, medical malpractice or other
actions are initiated against Dr. Grove or any Orthodontist or other Practice
Provider, the New PC shall immediately inform the MSO of such action and the
underlying facts and circumstances subject to such confidentiality agreement or
arrangements as the New PC and the MSO shall mutually determine at or prior to
the time of such disclosure. The New PC agrees to cooperate with and participate
in quality assurance/utilization review programs established by the MSO or
mandated by accreditation and licensure standards applicable to the practice of
orthodontics. Deficiencies discovered in the performance of any personnel or in
the quality of professional services shall be reported immediately to the MSO,
and appropriate steps shall be taken by the New PC at once to remedy such
deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such records shall be sufficient to
enable the MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Grove and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Dr. Grove and such
the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Grove and each participates in an on-going risk management program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Grove and each
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Orthodontist associated with the New PC devote their full time and attention,
unless other specific provisions are made in writing and mutually agreed upon by
the MSO and New PC. The New PC will cause Dr. Grove and each individual
Orthodontist who now is or hereafter becomes affiliated with the New PC to enter
into a written employment agreement (the "Employment Agreement") satisfactory in
form and substance to the MSO, pursuant to which Dr. Grove or the Orthodontist
shall agree not to establish, operate or provide orthodontic or dental services,
without the prior written consent of both the New PC and the MSO, at any office
or facility other than the Orthodontic Office. In addition, such Employment
Agreement shall provide by its own terms or by a separate agreement that if Dr.
Grove's or such Orthodontist's employment shall terminate for any reason during
the Term of this Agreement, for a period of 24 months after the termination of
Dr. Grove's or such Orthodontist's Employment Agreement with the New PC, Dr.
Grove or such Orthodontist shall agree not to establish, operate or provide
orthodontic or dental services, without the prior written consent of both the
New PC and the MSO, at any office practice or facility whatsoever providing
services similar to those provided by the New PC at any Dr. Grove or orthodontic
office within a fifteen (15) mile radius. Such Employment Agreement (or separate
agreement) shall also provide, among other things, that in the event of a breach
of Dr. Grove's or the Orthodontist's agreement not to compete with the New PC
provided for in such Employment Agreement (or separate agreement), the MSO shall
be entitled to receive, in addition to other remedies and not by way of an
election of remedies, liquidated damages equaling the greater of: (a) Dr.
Grove's or such Orthodontist's income, as shown on the W-2 form prepared by the
New PC, for the most recent calendar year; or (b) $300,000. Such payment shall
be made to the MSO by the New PC immediately following receipt of the payment
from Dr. Grove or the breaching Orthodontist by the New PC. Each of the MSO and
OMEGA shall be expressly named as a third-party beneficiary to such agreements
between the New PC and Dr. Grove and each Orthodontist and the rights and
remedies of the MSO and OMEGA thereunder or otherwise in respect of the
restrictive covenants set forth in such agreements shall survive termination of
this Agreement.
3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its shareholders, directors, officers, affiliates, partners,
shareholders and independent contractors to immediately return to the MSO all
Confidential Information, and the New PC will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The New PC further
expressly acknowledges and agrees that any such use, appropriation or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the MSO and OMEGA, that the remedy at law for the foregoing
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would be inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the MSO and OMEGA, in addition to any other
remedies or damages available to either or both of them, shall be entitled to
injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude the MSO and OMEGA from
other remedies which may be available to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
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ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises shall
be subject to all of the terms and conditions of the Master Lease. In the
event of the termination of the MSO's interest as lessee under the Master
Lease for any reason, then the sublease created hereby shall simultaneously
terminate, unless the New PC assumes the obligations under the Master Lease
in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its terms,
this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms thereof,
the MSO shall notify the New PC, at least 30 days prior to the expiration
of the time for exercising such option, of
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the MSO's intention to renew or not to renew such term. If the MSO
determines not to renew such term, the MSO shall provide or arrange for the
provision of comparable office space (the "Substitute Orthodontic Office")
within a radius of 15 miles of the Orthodontic Office, which Substitute
Orthodontic Office shall be subject to the approval of the New PC (which
approval shall not be unreasonably withheld or delayed). The lease or
sublease for such Substitute Orthodontic Office, as applicable, shall be
substituted for the lease described on Exhibit A hereto and all references
to the "Master Lease" shall thereafter be applicable to the lease or
sublease for the Substitute Orthodontic Office for purposes of this
Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
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(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontistry.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. The New PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto and incorporated herein as
Exhibit C. In consideration of the foregoing, the parties agree that the monthly
Management Fees payable to the MSO by the New PC for services rendered pursuant
to this Agreement shall be reviewed and subject to adjustment at the close of
each year of the Term of this Agreement based upon industry standards of
practice and the MSO's costs in performing the required services. If the parties
cannot agree within thirty (30) days prior to the close of any such year on the
terms of any adjustment to the Management Fees for the following year, then the
then existing Management Fees shall remain in effect. The New PC specifically
agrees that the MSO may defer actual receipt of its Management Fees and/or
advance monies for purposes of managing the New PC's cash flow, and the MSO may
repay itself such advances or pay said deferred Management Fees when it deems
appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the
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MSO pursuant to this Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under this Agreement, the New PC hereby pledges, grants, bargains, assigns and
transfers to the MSO a security interest, pursuant to the Uniform Commercial
Code of the State, in and to all Practice Revenue and accounts receivable of
patients of the New PC, together with all proceeds thereof (collectively, the
"Collateral"), and further agrees not to pledge, assign, transfer or convey any
of the Collateral or any proceeds therefrom, without the prior written consent
of the MSO, except to affiliates of the MSO. Concurrent with the execution of
this Agreement, the New PC shall execute a Security Agreement, similar in form
and content as that attached hereto as Exhibit D and incorporated herein by this
reference in order that the MSO may perfect its interest in the Collateral. The
New PC expressly agrees to execute any appropriate UCC-1 Financing Statement and
UCC-1 Fixture filings, if so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr. Grove and
the Orthodontists (if any) (to serve the orthodontic needs of the patients of
the New PC. The New PC covenants to monitor rigorously utilization and quality
of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
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(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Grove and each of the
Orthodontist providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Grove and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Grove's or
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such Orthodontist's relationship with the New PC, for any reason, tail insurance
coverage will be purchased by Dr. Grove or such Orthodontist. Such provisions
may be contained in an employment agreement, restrictive covenant agreement or
other agreement entered into by the New PC and Dr. Grove or the Orthodontist,
and the New PC hereby covenants with the MSO to enforce such provisions relating
to the tail insurance coverage or to provide such coverage at the expense of the
New PC or Dr. Grove or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the MSO, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by the MSO, except for the filing of a petition in
involuntary bankruptcy against the MSO which is dismissed within sixty (60) days
thereafter, the New PC may give written notice of the immediate termination of
this Agreement.
(2) In the event the MSO shall materially default in the performance of any
duty or obligation imposed upon it by this Agreement and such default shall
continue for a period of sixty (60) days after written notice thereof has been
given to the MSO by the New PC, the New PC may terminate this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call
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Option and Successor Designation Agreement") dated as of even date herewith, by
and among the New PC, Dr. Grove and the Orthodontists (if any), OMEGA and the
MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof , or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall materially default in the performance of
any other duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Grove or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Dr. Grove or such
Orthodontist to cure such breach or default within any applicable grace period
therefor, the MSO may give written notice of the immediate termination of this
Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC; provided, however, that all contracts or fees set for services on behalf of
the New PC will be subject to final
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approval and acceptance by the New PC. Additionally, the New PC hereby
irrevocably appoints the MSO (and its designees) its authorized agent and lawful
attorney-in-fact to collect all bills and accounts receivable for professional
fees, charges and other amounts and authorizes the MSO through its designees to
take possession of all checks, money orders and similar instruments received as
payment of receivables to be deposited into the New PC Account. The New PC
hereby irrevocably appoints the MSO as the New PC's attorney-in-fact, with full
power and authority in the place and stead of the New PC, in the MSO's
discretion, to endorse in the name of the New PC any checks, payments, notes,
insurance payments and money orders, to withdraw funds for payments of expenses,
including Management Fees and other sums payable to the MSO, to open and close
the New PC Account and other bank accounts, to take any action and to execute
any other instrument which the MSO may deem necessary or advisable to accomplish
the purposes hereof. The powers of attorney granted herein are coupled with an
interest and are irrevocable. Third parties and entities and persons not a party
to this Agreement are entitled to rely on the foregoing attorneys-in-fact and an
affidavit of the MSO attesting thereto. The acceptance of this appointment by
the MSO shall not obligate it to perform any duty or covenant required to be
performed by the New PC under or by virtue of this Agreement. Notwithstanding
the foregoing powers of attorney, the New PC shall at any time, on the request
of the MSO, sign financing statements, security agreements or other agreements
necessary or advisable to accomplish the purpose of this Agreement. Upon the New
PC's failure to sign said financing statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. The New PC may review all deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and
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disbursements as kept by the MSO in performing the MSO's obligations under this
Agreement, and the New PC may copy any or all such records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Grove or any of its Orthodontists (if any) and
other Practice Providers, shall have complete control and supervision over the
professional aspects of the New PC's practice, as well as the provision of all
professional services, including, without limitation, the selection of a course
of treatment for a patient, the procedures or materials to be used as a part of
such course of treatment, and the manner in which such course of treatment is
carried out by the New PC. The New PC shall have sole authority to direct the
business, professional, and ethical aspects of the New PC. The MSO shall have no
authority, directly or indirectly, to perform, and shall not perform, any
orthodontic function, or to influence or otherwise interfere with the exercise
of the New PC's professional judgment. The MSO may, however, advise the New PC
as to the relationship between its performance of orthodontic functions and the
overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from seeking
a preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject to
the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which describe how those
amounts are to be calculated, however, shall be subject to the provisions
of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement in
accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
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14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
-----------------------------------
581 12th Street
Elko, Nevada 89801
Attn: David T. Grove, D.M.D., M.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of
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the performance of this Agreement, without the other party's or parties' (as the
case may be) written approval; provided, however, the foregoing shall not apply
to information which is required to be disclosed by Law, including federal or
state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any mediation or arbitration or other legal action
or proceeding is brought to enforce this Agreement, because of any alleged
breach hereof, or for a declaration of any rights and obligations hereunder, the
prevailing party in such mediation or arbitration, action or proceeding shall be
entitled to recover its costs incurred therein, including reasonable attorneys'
fees, in addition to any other relief to which it may be entitled, all as
determined and awarded by the parties in such mediation or by the arbitrator or
court as
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<PAGE>
part of its judgment or decision therein, as the case may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written consent
of both parties.
15.14 Severability. In the event any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one or
more defaults, if any, on the part of the other party, shall not be construed to
operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
23
<PAGE>
NEW PC:
By:_______________________________
Name:
Title:
MSO:
OMEGA:
24
<PAGE>
OMEGA ORTHODONTICS OF ELKO, INC.
By:_______________________________
Name:
Title:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
25
<PAGE>
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
David T. Grove, D.M.D., M.S.
581 21th Street
Elko, Nevada 89801
26
<PAGE>
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Grove Attach]
27
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to ___ Percent ( %) of the Practice Revenues, and the New PC shall
be entitled to ___ Percent ( %) of such Practice Revenues, except as the parties
may otherwise agree from time to time in writing. At the end of each twelve (12)
month period during the Term the MSO shall provide the New PC with an unaudited
internal accounting of the MSO Expenses, prepared in accordance with the accrual
method of accounting. If the MSO Expenses as reflected in such accounting as
having been paid by the MSO are less than sixty (60%) percent of the Practice
Revenues for such twelve month period, fifty (50%) percent of such difference
shall be returned by the MSO to the New PC as a profit incentive rebate (the
"Rebate"). If the Agreement to which this Schedule 3 is attached is terminated
or expires, the foregoing Management Fees shall be payable to the MSO based on
all Practice Revenue collected as of the date of termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
28
<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Grove Attach]
29
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Grove Attach]
30
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
31
<PAGE>
AFFIDAVIT
I, David T. Grove, D.M.D., M.S., declare:
I am an orthodontist, duly licensed in the State of Nevada and I practice
through a professional corporation under the name ______________ (the "New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired significant
knowledge as to the overhead costs incurred and gross receipts generated by
similar types of orthodontic offices. Further, I am fully aware of the
non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 199__, between the New
PC and Omega Orthodontics of Elko, Inc. (the "MSO") concerning the duties,
responsibilities and obligations undertaken by the MSO in managing and operating
all non-orthodontic aspects of the Orthodontic Office as contemplated by the
Agreement.
I have reviewed the prior operating financial statements of the orthodontic
office located at 581 12th Street, Elko, Nevada 89801, and an operating budget
and estimated income of the orthodontic office, which, in my opinion, can
reasonably be expected from the operation of said office.
In my opinion, based upon my experience, the Management Fees of ____
Percent (___%) of "Practice Revenues" to be charged by the MSO as contemplated
by the Agreement, will afford it a reasonable but not excessive return for its
services rendered and obligations incurred. In addition, the New PC ____ Percent
( %) of "Practice Revenues" retained by the New PC, will provide reasonable
earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true and
correct to the best of my knowledge and belief.
Executed at ________________, ________ this day of , 199__.
---------------------------
David T. Grove, D.M.D., M.S.
32
<PAGE>
STATE OF NEVADA
___________________, ss ________________, 19___
Then personally appeared the above-named David T. Grove, D.M.D., M.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
33
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
34
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
199____, by _____________________, PC, a Nevada corporation (the "New PC"), and
David T. Grove, D.M.D., M.S. ("Dr. Grove") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Elko, Inc., a Delaware
corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Grove shall cause the New PC to
perform fully and on a timely basis all of the New PC's obligations under this
Security Agreement. The MSO may at its option file a financing statement (Form
UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
35
<PAGE>
obligations of a secured party under the Uniform Commercial Code as adopted in
the state of Nevada (the "State"). Such rights shall include, without
limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by
36
<PAGE>
the MSO in connection therewith;
B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Elko, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
581 12th Street
Elko, Nevada 89801
Attn: David T. Grove, D.M.D., M.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
37
<PAGE>
10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
ELKO, INC.
By:__________________________ By:__________________________
Name: Name:
Title: Title:
DR. GROVE:
- -------------------------------
David T. Grove, D.M.D., M.S.
38
<PAGE>
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A.Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic record of any
meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the
40
<PAGE>
parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. The sole arbitrator shall be agreed upon by the parties
within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
41
Exhibit 10.6
MANAGEMENT SERVICES AGREEMENT
BETWEEN
_____________________________
(the "New PC")
AND
Omega Orthodontics of Goodyear, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................6
2.12 Marketing.................................................................6
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................7
2.19 Practice Transition and Associate Selection...............................7
ARTICLE 3 DUTIES OF THE NEW PC................................................8
3.1 General....................................................................8
3.2 Employment of the Orthodontists and Rendering of Patient Care..............8
3.3 Professional Services......................................................8
3.4 Records....................................................................8
3.5 Professional Expenses......................................................9
3.6 Professional Liability Insurance...........................................9
3.7 Employment Agreement.......................................................9
3.8 Confidentiality...........................................................10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION.......................10
ii
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................11
5.3. No Warranty.............................................................12
ARTICLE 6 COMPENSATION.......................................................13
ARTICLE 7 SECURITY INTEREST..................................................14
ARTICLE 8 COVENANTS..........................................................14
8.1 New PC's Covenants........................................................14
8.2 MSO's Covenants...........................................................15
ARTICLE 9 INSURANCE AND INDEMNITY.............................................15
9.1 Insurance to be Maintained by the New PC..................................15
9.2 Insurance to be Maintained by the MSO.....................................15
9.3 Tail Insurance Coverage...................................................16
9.4 Additional Insureds.......................................................16
9.5 Indemnification...........................................................16
ARTICLE 10 TERMINATION.......................................................16
10.1 Termination by the New PC................................................16
10.2 Termination by MSO.......................................................17
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................18
ARTICLE 13 MISCELLANEOUS.....................................................18
13.1 Access to Records........................................................18
13.2 Patient Records..........................................................19
13.3 The New PC's Control Over the Orthodontic Practice.......................19
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................19
14.1 Alternative Dispute Resolution...........................................19
14.2 Waiver of Jury...........................................................20
ARTICLE 15 GENERAL PROVISIONS................................................20
15.1 Notices..................................................................20
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15.2 Confidentiality..........................................................21
15.3 Contract Modifications for Prospective Legal Events......................21
15.4 Remedies Cumulative......................................................21
15.5 No Obligation to Third Parties...........................................21
15.6 Entire Agreement.........................................................21
15.7 Assignment...............................................................21
15.8 Attorneys' Fees..........................................................22
15.9 Governing Law............................................................22
15.10 Events Excusing Performance.............................................22
15.11 Compliance with Applicable Laws.........................................22
15.12 Language Construction...................................................22
15.13 Amendments..............................................................22
15.14 Severability............................................................22
15.15 No Waiver...............................................................22
15.16 Captions................................................................22
15.17 Counterparts............................................................23
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________, 1997,
by and between ____________________, Inc., a professional corporation (the "New
PC") incorporated under the laws of the State of Arizona (the "State"), and
OMEGA Orthodontics of Goodyear, Inc., a Delaware corporation (the "MSO"), and
OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Michael G. Churosh, D.D.S. ("Dr. Churosh") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Michael G. Churosh,
D.D.S., M.S., LTD., an Arizona professional corporation owned by Dr. Churosh was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Churosh and any and all other orthodontists who are or become affiliated with
the New PC as of or following the date and who are or become subsequently named
on Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Churosh and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
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1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services.
(a) The MSO shall supply secretarial, reception, maintenance, front office,
skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Churosh and
the Orthodontists (if any) and other individuals who are employees of the New PC
or otherwise under contract with the New PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the New PC or otherwise
required by applicable "Laws" (as defined in Section 2.6 below) to be employees
of the New PC to provide services to patients of the Practice. A list of all
Practice Providers and their relationship to the New PC is set forth as Exhibit
B attached hereto and incorporated herein by reference. Prior to making any
changes in the list of Practice Providers, the New PC shall use its best efforts
to consult with the MSO. The New PC also shall use its best efforts to consult
with the MSO with regard to the terms of contracts entered into between the New
PC and the Practice Providers and the terms and conditions of their employment
or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish tc standardized business systems and procedures for
the New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr. Churosh
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and the Orthodontists (if any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and compromising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct costs
payable to Dr. Churosh and the Orthodontists (if any) and the other
Practice Providers of the New PC, and all withholding taxes and assessments
payable to Federal, state and local governments in connection with the
employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6 hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of the
MSO providing services to the New PC hereunder (but excluding Dr. Churosh
and all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or any
corporation affiliated with the MSO other than the kind of items listed
above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as utility
expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists to
become employed by the New PC or other orthodontic entities to merge with
the New PC, actual out-of-pocket expenses of the MSO personnel working on a
specified employment arrangement or merger, whether or not such employment
arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its obligations
under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Churosh and the Orthodontists (if any) and the other Practice Providers, or
the costs of preparing Federal, state or local tax returns thereof;
(2) Salaries, benefits and other direct costs of employing Dr. Churosh
and the Orthodontists (if any) and the other Practice Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in
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professional associations and societies for Practice Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof;
(5) Costs of continuing professional education for Practice Providers,
including travel and related expenses;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC other than as otherwise expressly
provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of any
policy;
(8) Direct personal expenses of the Practice Providers of a kind which
the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other expenses
which are personal in nature);
(9) Charitable contributions by the New PC; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other
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materials reasonably related to the carrying out of the business purposes of the
New PC, including all stationery, printing and postage costs in connection
therewith. In connection with such marketing plan, the MSO shall advise Dr.
Churosh and the Orthodontists (if any) on establishing and maintaining a plan
for patients' payments for orthodontic services on an installment plan basis.
All marketing activities hereunder shall be conducted in compliance with all
applicable Laws governing advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice Providers. The MSO shall prepare
and file all reports, forms and returns required by Law in connection with
workers' compensation, unemployment insurance, social security and other similar
Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office property
damage and liability, including business interruption insurance, not including
professional liability insurance (which shall be and remain the responsibility
of the New PC).
2.19 Practice Transition and Associate Selection . Dr. Churosh and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
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After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Churosh and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Churosh and such
Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Churosh and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Churosh and the
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr. Churosh
and each Orthodontist who provides orthodontic services to patients is licensed
by the State. In the event that any disciplinary, medical malpractice or other
actions are initiated against Dr. Churosh or any Orthodontist or other Practice
Provider, the New PC shall immediately inform the MSO of such action and the
underlying facts and circumstances subject to such confidentiality agreement or
arrangements as the New PC and the MSO shall mutually determine at or prior to
the time of such disclosure. The New PC agrees to cooperate with and participate
in quality assurance/utilization review programs established by the MSO or
mandated by accreditation and licensure standards applicable to the practice of
orthodontics. Deficiencies discovered in the performance of any personnel or in
the quality of professional services shall be reported immediately to the MSO,
and appropriate steps shall be taken by the New PC at once to remedy such
deficiencies.
3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such
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records shall be sufficient to enable the MSO, on behalf of the New PC, to
obtain payments for services and related charges and to facilitate the delivery
of quality patient care by the New PC. Notwithstanding the foregoing, patient
dental records shall be and remain the property of the New PC and the contents
thereof shall be solely the responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Churosh and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Dr. Churosh and
such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Churosh and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Churosh and each Orthodontist associated
with the New PC devote their full time and attention, unless other specific
provisions are made in writing and mutually agreed upon by the MSO and New PC.
The New PC will cause Dr. Churosh and each individual Orthodontist who now is or
hereafter becomes affiliated with the New PC to enter into a written employment
agreement (the "Employment Agreement") satisfactory in form and substance to the
MSO, pursuant to which Dr. Churosh or the Orthodontist shall agree not to
establish, operate or provide orthodontic or dental services, without the prior
written consent of both the New PC and the MSO, at any office or facility other
than the Orthodontic Office. In addition, such Employment Agreement shall
provide by its own terms or by a separate agreement that if Dr. Churosh's or
such Orthodontist's employment shall terminate for any reason during the Term of
this Agreement, for a period of 24 months after the termination of Dr. Churosh's
or such Orthodontist's Employment Agreement with the New PC, Dr. Churosh or such
Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the New PC and the
MSO, at any office practice or facility whatsoever providing services similar to
those provided by the New PC at any orthodontic office within a fifteen (15)
mile radius. Such Employment Agreement (or separate agreement) shall also
provide, among other things, that in the event of a breach of Dr. Churosh's or
the Orthodontist's agreement not to compete with the New PC provided for in such
Employment Agreement (or separate agreement), the MSO shall be entitled to
receive, in addition to other remedies and not by way of an election of
remedies, liquidated damages equaling the greater of: (a) Dr. Churosh's or such
Orthodontist's income, as shown on the W-2 form prepared by the New PC, for the
most recent calendar year; or (b) $300,000. Such payment shall be made to the
MSO by the New PC immediately following receipt of the payment from Dr. Churosh
or the breaching Orthodontist by the New PC. Each of the MSO and OMEGA shall be
expressly named as a third-party beneficiary to such agreements between the New
PC and Dr. Churosh and each Orthodontist and the rights and remedies of the MSO
and OMEGA thereunder or otherwise in respect of the restrictive covenants set
forth in such agreements shall survive termination of this Agreement.
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3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its shareholders, directors, officers, affiliates, partners,
shareholders and independent contractors to immediately return to the MSO all
Confidential Information, and the New PC will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The New PC further
expressly acknowledges and agrees that any such use, appropriation or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the MSO and OMEGA, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the MSO and OMEGA, in addition to any other
remedies or damages available to either or both of them, shall be entitled to
injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude the MSO and OMEGA from
other remedies which may be available to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
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4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises shall
be subject to all of the terms and conditions of the Master Lease. In the
event of the termination of the MSO's interest as lessee under the Master
Lease for any reason, then the sublease created hereby shall simultaneously
terminate, unless the New PC assumes the obligations under the Master Lease
in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
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(iv) In the event this Agreement is terminated according to its terms,
this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms thereof,
the MSO shall notify the New PC, at least 30 days prior to the expiration
of the time for exercising such option, of the MSO's intention to renew or
not to renew such term. If the MSO determines not to renew such term, the
MSO shall provide or arrange for the provision of comparable office space
(the "Substitute Orthodontic Office") within a radius of 15 miles of the
Orthodontic Office, which Substitute Orthodontic Office shall be subject to
the approval of the New PC (which approval shall not be unreasonably
withheld or delayed). The lease or sublease for such Substitute Orthodontic
Office, as applicable, shall be substituted for the lease described on
Exhibit A hereto and all references to the "Master Lease" shall thereafter
be applicable to the lease or sublease for the Substitute Orthodontic
Office for purposes of this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES
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OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontics.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. The New PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto and incorporated herein as
Exhibit C. In consideration of the foregoing, the parties agree that the monthly
Management Fees payable to the MSO by the New PC for services rendered pursuant
to this Agreement shall be reviewed and subject to adjustment at the close of
each year of the Term of this Agreement based upon industry standards of
practice and the MSO's costs in performing the required services. If the parties
cannot agree within thirty (30) days prior to the close of any such year on the
terms of any adjustment to the Management Fees for the following year, then the
then existing Management Fees shall remain in effect. The New PC specifically
agrees that the MSO may defer actual receipt of its Management Fees and/or
advance monies for purposes of managing the New PC's cash flow, and the MSO may
repay itself such advances or pay said deferred Management Fees when it deems
appropriate.
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ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the MSO pursuant to this Agreement and any funds
advanced by the MSO to or on behalf of the New PC pursuant to this Agreement and
for the faithful and timely performance of all the covenants and conditions to
be performed by the New PC under this Agreement, the New PC hereby pledges,
grants, bargains, assigns and transfers to the MSO a security interest, pursuant
to the Uniform Commercial Code of the State, in and to all Practice Revenue and
accounts receivable of patients of the New PC, together with all proceeds
thereof (collectively, the "Collateral"), and further agrees not to pledge,
assign, transfer or convey any of the Collateral or any proceeds therefrom,
without the prior written consent of the MSO, except to affiliates of the MSO.
Concurrent with the execution of this Agreement, the New PC shall execute a
Security Agreement, similar in form and content as that attached hereto as
Exhibit D and incorporated herein by this reference in order that the MSO may
perfect its interest in the Collateral. The New PC expressly agrees to execute
any appropriate UCC-1 Financing Statement and UCC-1 Fixture filings, if so
requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr. Churosh
and the Orthodontists (if any) (to serve the orthodontic needs of the patients
of the New PC. The New PC covenants to monitor rigorously utilization and
quality of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO
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Information") regarding such system. The New PC acknowledges and agrees that all
information relating to the OMEGA Patient Scheduling System and the MSO
Information constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby
waives any and all right, title and interest in and to such trade secrets and
agrees to return all copies of such trade secrets and information relating
thereto, at its expense, upon termination of this Agreement.
(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Churosh and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional
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liability insurance for all professional employees of the MSO with limits as
determined reasonable by the MSO; and (b) comprehensive general liability and
property insurance covering the Orthodontic Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Churosh and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Churosh's or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
Dr. Churosh or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the New PC and Dr. Churosh or the Orthodontist, and the New PC hereby
covenants with the MSO to enforce such provisions relating to the tail insurance
coverage or to provide such coverage at the expense of the New PC or Dr. Churosh
or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall materially default in the performance
of any duty
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or obligation imposed upon it by this Agreement and such default shall
continue for a period of sixty (60) days after written notice thereof has
been given to the MSO by the New PC, the New PC may terminate this
Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call Option and Successor Designation Agreement") dated as of even date
herewith, by and among the New PC, Dr. Churosh and the Orthodontists (if any),
OMEGA and the MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof , or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall materially default in the performance of
any other duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Churosh or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Dr. Churosh or
such Orthodontist to cure such breach or default within any applicable grace
period therefor, the MSO may give written notice of the immediate termination of
this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
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ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC; provided, however, that all contracts or fees set for services on behalf of
the New PC will be subject to final approval and acceptance by the New PC.
Additionally, the New PC hereby irrevocably appoints the MSO (and its designees)
its authorized agent and lawful attorney-in-fact to collect all bills and
accounts receivable for professional fees, charges and other amounts and
authorizes the MSO through its designees to take possession of all checks, money
orders and similar instruments received as payment of receivables to be
deposited into the New PC Account. The New PC hereby irrevocably appoints the
MSO as the New PC's attorney-in-fact, with full power and authority in the place
and stead of the New PC, in the MSO's discretion, to endorse in the name of the
New PC any checks, payments, notes, insurance payments and money orders, to
withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are irrevocable. Third
parties and entities and persons not a party to this Agreement are entitled to
rely on the foregoing attorneys-in-fact and an affidavit of the MSO attesting
thereto. The acceptance of this appointment by the MSO shall not obligate it to
perform any duty or covenant required to be performed by the New PC under or by
virtue of this Agreement. Notwithstanding the foregoing powers of attorney, the
New PC shall at any time, on the request of the MSO, sign financing statements,
security agreements or other agreements necessary or advisable to accomplish the
purpose of this Agreement. Upon the New PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is authorized as
the agent of the New PC to sign any such instruments. The New PC may review all
deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the
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other party with reasonable access to books and records then owned by it to
permit such requesting party to satisfy reporting and contractual obligations
which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and disbursements as kept by the MSO in performing the
MSO's obligations under this Agreement, and the New PC may copy any or all such
records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Churosh or any of its Orthodontists (if any)
and other Practice Providers, shall have complete control and supervision over
the professional aspects of the New PC's practice, as well as the provision of
all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The MSO may, however, advise
the New PC as to the relationship between its performance of orthodontic
functions and the overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from seeking
a preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject to
the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which
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describe how those amounts are to be calculated, however, shall be subject
to the provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement in
accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
1105 North Litchfield Road
Goodyear, Arizona 85338
Attn: Michael G. Churosh, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
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or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's or parties' (as
the case may be) written approval; provided, however, the foregoing shall not
apply to information which is required to be disclosed by Law, including federal
or state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
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15.8 Attorneys' Fees. If any mediation or arbitration or other legal action
or proceeding is brought to enforce this Agreement, because of any alleged
breach hereof, or for a declaration of any rights and obligations hereunder, the
prevailing party in such mediation or arbitration, action or proceeding shall be
entitled to recover its costs incurred therein, including reasonable attorneys'
fees, in addition to any other relief to which it may be entitled, all as
determined and awarded by the parties in such mediation or by the arbitrator or
court as part of its judgment or decision therein, as the case may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written consent
of both parties.
15.14 Severability. In the event any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one or
more defaults, if any, on the part of the other party, shall not be construed to
operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
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15.17 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By:_______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF GOODYEAR, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
23
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SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Michael G. Churosh, D.D.S.
1105 North Litchfield Road
Goodyear, Arizona 85338
24
<PAGE>
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Churosh Attach]
25
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SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
1. So long as Dr. Churosh owns any of the stock of the New PC:
(i) the MSO shall receive, as compensation for the performance of all of
its obligations and duties contained in the Agreement, monthly Management Fees
in an amount equal to Seventy Percent (70%) of the Practice Revenues, and the
New PC shall be entitled to Thirty Percent ( 30%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing.
(ii) At the end of each twelve (12) month period during the Term the MSO
shall provide the New PC with an unaudited internal accounting of the MSO
Expenses, prepared in accordance with the accrual method of accounting. If the
MSO Expenses as reflected in such accounting as having been paid by the MSO are
less than fifty-five (55%) percent of the Practice Revenues for such twelve
month period, fifty (50%) percent of such difference shall be returned by the
MSO to the New PC as a profit incentive rebate (the "Rebate"). If the Agreement
to which this Schedule 3 is attached is terminated or expires, the foregoing
Management Fees shall be payable to the MSO based on all Practice Revenue
collected as of the date of termination or expiration.
2. Effective as of the day Dr. Churosh sells all of the Stock of the New PC
to a Designated Successor (as defined in Section 5 of the Successor Designation
Agreement):
(i) the MSO shall receive, as compensation for the performance of all of
its obligations and duties contained in the Agreement, monthly Management Fees
in an amount equal to Seventy-Five Percent (75%) of the Practice Revenues, and
the New PC shall be entitled to Twenty-Five Percent (25%) of such Practice
Revenues, except as the parties may otherwise agree from time to time in
writing.
(ii) At the end of each twelve (12) month period during the Term the MSO
shall provide the New PC with an unaudited internal accounting of the MSO
Expenses, prepared in accordance with the accrual method of accounting. If the
MSO Expenses as reflected in such accounting as having been paid by the MSO are
less than sixty (60%) percent of the Practice Revenues for such twelve month
period, fifty (50%) percent of such difference shall be returned by the MSO to
the New PC as a profit incentive rebate (the "Rebate"). If the Agreement to
which this Schedule 3 is attached is terminated or expires, the foregoing
Management Fees shall be payable to the MSO based on all Practice Revenue
collected as of the date of termination or expiration.
(iii) After selling all of his stock in the New PC to a Designated
Successor, Dr. Churosh shall be a consultant to the New PC for a period not to
exceed five (5) years, during which time, Dr. Churosh shall be compensated by
receiving an annual consulting fee equal to Five Percent (5%) of the Practice
Revenues for the New PC, such fee to be payable in equal monthly installments.
Dr. Churosh's consulting work shall include, without limitation, inspecting the
New PC practice from time to time as needed and making recommendations to
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the Designated Successor regarding such practice.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO, the New PC and were allocable, Dr. Churosh as described above,
on or before the 15th day of the succeeding month. In the event the 15th day
falls on a weekend or holiday, then said distribution shall be made on the next
business day. The parties hereto may agree to handle such matters in a different
manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
27
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Churosh Attach]
28
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EXHIBIT B
PRACTICE PROVIDERS
[Dr. Churosh Attach]
29
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EXHIBIT C
New PC'S AFFIDAVIT
30
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AFFIDAVIT
I, Michael G. Churosh, D.D.S., declare:
I am an orthodontist, duly licensed in the State of Arizona and I practice
through a professional corporation under the name ______________ (the "New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired significant
knowledge as to the overhead costs incurred and gross receipts generated by
similar types of orthodontic offices. Further, I am fully aware of the
non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 1997, between the New
PC and Omega Orthodontics of Goodyear, Inc. (the "MSO") concerning the duties,
responsibilities and obligations undertaken by the MSO in managing and operating
all non-orthodontic aspects of the Orthodontic Office as contemplated by the
Agreement.
I have reviewed the prior operating financial statements of the orthodontic
office located at 1105 North Litchfield Road, Goodyear, Arizona 85338 and an
operating budget and estimated income of the orthodontic office, which, in my
opinion, can reasonably be expected from the operation of said office.
In my opinion, based upon my experience, the Management Fees of ____
Percent (___%) of "Practice Revenues" to be charged by the MSO as contemplated
by the Agreement, will afford it a reasonable but not excessive return for its
services rendered and obligations incurred. In addition, the New PC ____ Percent
( %) of "Practice Revenues" retained by the New PC, will provide reasonable
earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true and
correct to the best of my knowledge and belief.
Executed at , ________ this day of , 1997.
____________________________
Michael G. Churosh, D.D.S.
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STATE OF ARIZONA
___________________, ss _______________________, 1997
Then personally appeared the above-named Michael G. Churosh, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
32
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EXHIBIT D
SECURITY AGREEMENT
33
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, an Arizona corporation (the "New PC"), and
Michael G. Churosh, D.D.S. ("Dr. Churosh") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Goodyear, Inc., a Delaware
corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Churosh shall cause the New PC
to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
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obligations of a secured party under the Uniform Commercial Code as adopted in
the state of Arizona (the "State"). Such rights shall include, without
limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
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B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Goodyear, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
1105 North Litchfield Road
Goodyear, Arizona 85338
Attn: Michael G. Churosh, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
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10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
37
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
GOODYEAR , INC.
By:____________________________ By:__________________________
Name: Name:
Title: Title:
DR. CHUROSH:
_______________________________
Michael G. Churosh, D.D.S.
38
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EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A.Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the
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parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall submit
the matter to binding arbitration in Boston, Massachusetts before a qualified
sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. If the party initially
raising the dispute to be resolved is New PC or Dr. Churosh, the arbitration
shall be held in Boston, Massachusetts, and if the party initially raising the
dispute to be resolved is the MSO or OMEGA, the arbitration shall be held in
Goodyear, Arizona. The sole arbitrator shall be agreed upon by the parties
within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
41
Exhibit 10.7
MANAGEMENT SERVICES AGREEMENT
BETWEEN
____________________________
(the "New PC")
AND
Omega Orthodontics of Huntington Beach, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................6
2.12 Marketing.................................................................7
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................7
2.19 Practice Transition and Associate Selection...............................7
ARTICLE 3 DUTIES OF THE NEW PC................................................8
3.1 General....................................................................8
3.2 Employment of the Orthodontists and Rendering of Patient Care..............8
3.3 Professional Services......................................................8
3.4 Records....................................................................9
3.5 Professional Expenses......................................................9
3.6 Professional Liability Insurance...........................................9
3.7 Employment Agreement.......................................................9
3.8 Confidentiality...........................................................10
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION...................................10
ii
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................12
5.3. No Warranty.............................................................13
ARTICLE 6 COMPENSATION.......................................................14
ARTICLE 7 SECURITY INTEREST..................................................14
ARTICLE 8 COVENANTS..........................................................15
8.1 New PC's Covenants........................................................15
8.2 MSO's Covenants...........................................................16
ARTICLE 9 INSURANCE AND INDEMNITY.............................................16
9.1 Insurance to be Maintained by the New PC..................................16
9.2 Insurance to be Maintained by the MSO.....................................16
9.3 Tail Insurance Coverage...................................................16
9.4 Additional Insureds.......................................................17
9.5 Indemnification...........................................................17
ARTICLE 10 TERMINATION.......................................................17
10.1 Termination by the New PC................................................17
10.2 Termination by MSO.......................................................18
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................19
ARTICLE 13 MISCELLANEOUS.....................................................19
13.1 Access to Records........................................................19
13.2 Patient Records..........................................................19
13.3 The New PC's Control Over the Orthodontic Practice.......................20
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................20
14.1 Alternative Dispute Resolution...........................................20
14.2 Waiver of Jury...........................................................21
ARTICLE 15 GENERAL PROVISIONS................................................21
15.1 Notices..................................................................21
15.2 Confidentiality..........................................................21
15.3 Contract Modifications for Prospective Legal Events......................22
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15.4 Remedies Cumulative......................................................22
15.5 No Obligation to Third Parties...........................................22
15.6 Entire Agreement.........................................................22
15.7 Assignment...............................................................22
15.8 Attorneys' Fees..........................................................22
15.9 Governing Law............................................................23
15.10 Events Excusing Performance.............................................23
15.11 Compliance with Applicable Laws.........................................23
15.12 Language Construction...................................................23
15.13 Amendments..............................................................23
15.14 Severability............................................................23
15.15 No Waiver...............................................................23
15.16 Captions................................................................23
15.17 Counterparts............................................................23
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________,
1997, by and between ____________________, Inc., a professional corporation (the
"New PC") incorporated under the laws of the State of California (the "State"),
and OMEGA Orthodontics of Huntington Beach, Inc., a Delaware corporation (the
"MSO"), and OMEGA ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Clark E. Schneekluth, D.D.S. ("Dr. Schneekluth") who is
duly licensed to practice orthodontics in the State have entered into that
certain Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Clark E. Schneekluth,
D.D.S., P.C., a California professional corporation owned by Dr. Schneekluth was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Schneekluth and any and all other orthodontists who are or become affiliated
with the New PC as of or following the date and who are or become subsequently
named on Schedule 1 hereto (individually, an "Orthodontist" and collectively,
the "Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Dr. Schneekluth and
the Orthodontists (if any) to render quality orthodontic care to the patients of
the New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
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1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide the New PC with comprehensive practice
management, financial and marketing services, and such facilities, equipment,
and support personnel as are reasonably required by the New PC to operate its
orthodontic practice at the Orthodontic Offices, as determined by the MSO in
consultation with the New PC. The New PC hereby appoints the MSO as the sole and
exclusive business manager of the New PC and agrees that the MSO shall have all
power and authority reasonably necessary to manage the non-orthodontic business
affairs of the New PC and carry out the MSO's orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics. The MSO may perform some or all of its
services at a location other than at the Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services.
(a) The MSO shall supply secretarial, reception, maintenance, front
office, skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Dr. Schneekluth
and the Orthodontists (if any) and other individuals who are employees of the
New PC or otherwise under contract with the New PC to provide dental or
orthodontic, hygienic or other assistance or services to patients of the New PC
or otherwise required by applicable "Laws" (as defined in Section 2.6 below) to
be employees of the New PC to provide services to patients of the Practice. A
list of all Practice Providers and their relationship to the New PC is set forth
as Exhibit B attached hereto and incorporated herein by reference. Prior to
making any changes in the list of Practice Providers, the New PC shall use its
best efforts to consult with the MSO. The New PC also shall use its best efforts
to consult with the MSO with regard to the terms of contracts entered into
between the New PC and the Practice Providers and the terms and conditions of
their employment or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Dr.
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Schneekluth and the Orthodontists (if any) or any employee or agent of the New
PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and compromising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only bill under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct
costs payable to Dr. Schneekluth and the Orthodontists (if any) and the
other Practice Providers of the New PC, and all withholding taxes and
assessments payable to Federal, state and local governments in connection
with the employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6
hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO will advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of
the MSO providing services to the New PC hereunder (but excluding Dr.
Schneekluth and all the Orthodontists (if any) and other Practice
Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or
any corporation affiliated with the MSO other than the kind of items
listed above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as
utility expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the
MSO's assets used in connection with the operation of the Orthodontic
Offices, commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists
to become employed by the New PC or other orthodontic entities to merge
with the New PC, actual out-of-pocket expenses of the MSO personnel
working on a specified employment arrangement or merger, whether or not
such employment arrangement or merger is consummated;
(7) Other expenses incurred by the MSO in carrying out its
obligations under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Dr.
Schneekluth and the Orthodontists (if any) and the other Practice
Providers, or the costs of preparing Federal, state or local tax returns
thereof;
(2) Salaries, benefits and other direct costs of employing Dr.
Schneekluth and the Orthodontists (if any) and the other Practice
Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in
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professional associations and societies for Practice Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof;
(5) Costs of continuing professional education for Practice
Providers, including travel and related expenses;
(6) Costs associated with legal, accounting and professional
services incurred by or on behalf of the New PC other than as otherwise
expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of
any policy;
(8) Direct personal expenses of the Practice Providers of a kind
which the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other
expenses which are personal in nature);
(9) Charitable contributions by the New PC; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
Notwithstanding anything to the contrary in this Section 2.9, any
continuing or other OMEGA related education required or provided by OMEGA shall
be at no cost to the New PC, the MSO or the Practice Providers.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the MSO shall obtain on behalf of the New PC information with
regard to the ability of patients to pay for the services to be rendered by the
New PC. The MSO shall collect all information and determine, to the best of its
ability, whether or not patients can pay for services rendered by the New PC,
either in cash or by insurance. Such determination shall be subject to the
reasonable approval by the New PC, and as between the New PC and the MSO, the
New PC shall bear the risk of claims by potential patients who may be denied
credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO
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shall assist and advise the New PC in the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other materials reasonably related to
the carrying out of the business purposes of the New PC, including all
stationery, printing and postage costs in connection therewith. In connection
with such marketing plan, the MSO shall advise Dr. Schneekluth and the
Orthodontists (if any) on establishing and maintaining a plan for patients'
payments for orthodontic services on an installment plan basis. All marketing
activities hereunder shall be conducted in compliance with all applicable Laws
governing advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for
security, maintenance and cleaning of the Orthodontic Offices, including the
furniture, fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice Providers. The MSO shall prepare
and file all reports, forms and returns required by Law in connection with
workers' compensation, unemployment insurance, social security and other similar
Laws with respect to the MSO's employees.
2.18 Insurance. The MSO shall provide and pay for customary office
property damage and liability, including business interruption insurance, not
including professional liability insurance (which shall be and remain the
responsibility of the New PC).
2.19 Practice Transition and Associate Selection . Dr. Schneekluth and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
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The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Dr.
Schneekluth and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Schneekluth and
such Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Dr. Schneekluth and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Schneekluth and the
Orthodontists (if any), and no other orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The New PC shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. The New PC shall ensure that Dr.
Schneekluth and each Orthodontist who provides orthodontic services to patients
is licensed by the State. In the event that any disciplinary, medical
malpractice or other actions are initiated against Dr. Schneekluth or any
Orthodontist or other Practice Provider, the New PC shall immediately inform the
MSO of such action and the underlying facts and circumstances subject to such
confidentiality agreement or arrangements as the New PC and the MSO shall
mutually determine at or prior to the time of such disclosure. The New PC agrees
to cooperate with and participate in quality assurance/utilization review
programs established by the MSO or mandated by accreditation and licensure
standards applicable to the practice of orthodontics. Deficiencies discovered in
the performance of any personnel or in the quality of professional services
shall be reported immediately to the MSO, and appropriate steps shall be taken
by the New PC at once to remedy such deficiencies.
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3.4 Records. The New PC will keep or cause to be kept accurate, complete
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with all applicable Laws
regarding their confidentiality and retention and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. Such records shall be sufficient to
enable the MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Schneekluth and all the Orthodontists employed by the New
PC participate in such continuing education as is necessary for Dr. Schneekluth
and such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Dr.
Schneekluth and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Dr. Schneekluth and each Orthodontist
associated with the New PC devote their full time and attention, unless other
specific provisions are made in writing and mutually agreed upon by the MSO and
New PC. The New PC will cause Dr. Schneekluth and each individual Orthodontist
who now is or hereafter becomes affiliated with the New PC to enter into a
written employment agreement (the "Employment Agreement") satisfactory in form
and substance to the MSO, pursuant to which Dr. Schneekluth or the Orthodontist
shall agree not to establish, operate or provide orthodontic or dental services,
without the prior written consent of both the New PC and the MSO, at any office
or facility other than the Orthodontic Office. In addition, such Employment
Agreement shall provide by its own terms or by a separate agreement that if Dr.
Schneekluth's or such Orthodontist's employment shall terminate for any reason
during the Term of this Agreement, for a period of 24 months after the
termination of Dr. Schneekluth's or such Orthodontist's Employment Agreement
with the New PC, Dr. Schneekluth or such Orthodontist shall agree not to
establish, operate or provide orthodontic or dental services, without the prior
written consent of both the New PC and the MSO, at any office practice or
facility whatsoever providing services similar to those provided by the New PC
at any orthodontic office within a fifteen (15) mile radius. Such Employment
Agreement (or separate agreement) shall also provide, among other things, that
in the event of a breach of Dr. Schneekluth's or the Orthodontist's agreement
not to compete with the New PC provided for in such Employment Agreement (or
separate agreement), the MSO shall be entitled to receive, in addition to other
remedies and not by way of an election of remedies, liquidated damages equaling
the greater of: (a) Dr. Schneekluth's or such Orthodontist's income, as shown on
the W-2 form prepared by the New PC, for the most recent calendar year; or (b)
$300,000. Such payment shall be made to the MSO by the New PC immediately
following receipt of the payment from Dr. Schneekluth or the breaching
Orthodontist by the New PC. Each of
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the MSO and OMEGA shall be expressly named as a third-party beneficiary to such
agreements between the New PC and Dr. Schneekluth and each Orthodontist and the
rights and remedies of the MSO and OMEGA thereunder or otherwise in respect of
the restrictive covenants set forth in such agreements shall survive termination
of this Agreement.
3.8 Confidentiality. The New PC agrees and acknowledges that all materials
provided by the MSO to the New PC constitute "Confidential Information" and are
disclosed in confidence and with the understanding that it constitutes valuable
business information developed by the MSO with the assistance of OMEGA at great
expenditures of time, effort and money. The New PC further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
MSO, use or disclose such Confidential Information for any purpose other than in
connection with the services to be rendered hereunder. The New PC further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party,
including its shareholders, directors, officers, affiliates, partners, employees
and independent contractors without the express prior written consent of the
MSO; and (ii) to impose this obligation of confidentiality on its shareholders,
directors, officers, affiliates, partners, employees and independent
contractors. The New PC acknowledges that the disclosure of Confidential
Information to it by the MSO is done in reliance upon its representations and
covenants in this Agreement. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the New PC shall immediately return and
shall cause its shareholders, directors, officers, affiliates, partners,
shareholders and independent contractors to immediately return to the MSO all
Confidential Information, and the New PC will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The New PC further
expressly acknowledges and agrees that any such use, appropriation or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the MSO and OMEGA, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the MSO and OMEGA, in addition to any other
remedies or damages available to either or both of them, shall be entitled to
injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude the MSO and OMEGA from
other remedies which may be available to either or both of them hereunder.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to solicit patients on behalf of, the New PC, nor shall the MSO have any
control over the New PC's patients.
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4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
nor are such benefits in any way contingent upon the recommendation, referral or
any other arrangement for the provision of any item or service offered by the
New PC or any of its Practice Providers, employees, contractors or agents.
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ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises
shall be subject to all of the terms and conditions of the Master Lease.
In the event of the termination of the MSO's interest as lessee under the
Master Lease for any reason, then the sublease created hereby shall
simultaneously terminate, unless the New PC assumes the obligations under
the Master Lease in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease
are incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its
terms, this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms
thereof, the MSO shall notify the New PC, at least 30 days prior to the
expiration of the time for exercising such option, of
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the MSO's intention to renew or not to renew such term. If the MSO
determines not to renew such term, the MSO shall provide or arrange for
the provision of comparable office space (the "Substitute Orthodontic
Office") within a radius of 15 miles of the Orthodontic Office, which
Substitute Orthodontic Office shall be subject to the approval of the New
PC (which approval shall not be unreasonably withheld or delayed). The
lease or sublease for such Substitute Orthodontic Office, as applicable,
shall be substituted for the lease described on Exhibit A hereto and all
references to the "Master Lease" shall thereafter be applicable to the
lease or sublease for the Substitute Orthodontic Office for purposes of
this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
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(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontics.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. The New PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto and incorporated herein as
Exhibit C. In consideration of the foregoing, the parties agree that the monthly
Management Fees payable to the MSO by the New PC for services rendered pursuant
to this Agreement shall be reviewed and subject to adjustment at the close of
each year of the Term of this Agreement based upon industry standards of
practice and the MSO's costs in performing the required services. If the parties
cannot agree within thirty (30) days prior to the close of any such year on the
terms of any adjustment to the Management Fees for the following year, then the
then existing Management Fees shall remain in effect. The New PC specifically
agrees that the MSO may defer actual receipt of its Management Fees and/or
advance monies for purposes of managing the New PC's cash flow, and the MSO may
repay itself such advances or pay said deferred Management Fees when it deems
appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the
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MSO pursuant to this Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under this Agreement, the New PC hereby pledges, grants, bargains, assigns and
transfers to the MSO a security interest, pursuant to the Uniform Commercial
Code of the State, in and to all Practice Revenue and accounts receivable of
patients of the New PC, together with all proceeds thereof (collectively, the
"Collateral"), and further agrees not to pledge, assign, transfer or convey any
of the Collateral or any proceeds therefrom, without the prior written consent
of the MSO, except to affiliates of the MSO. Concurrent with the execution of
this Agreement, the New PC shall execute a Security Agreement, similar in form
and content as that attached hereto as Exhibit D and incorporated herein by this
reference in order that the MSO may perfect its interest in the Collateral. The
New PC expressly agrees to execute any appropriate UCC-1 Financing Statement and
UCC-1 Fixture filings, if so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Dr.
Schneekluth and the Orthodontists (if any) (to serve the orthodontic needs of
the patients of the New PC. The New PC covenants to monitor rigorously
utilization and quality of services provided at the Orthodontic Offices and
shall take all steps necessary to remedy any and all deficiencies in the
efficiency or the quality of orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of 15 miles of the Orthodontic Office or of such
other orthodontic practice, without the MSO's prior written consent.
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
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(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a 15 mile radius
of the Orthodontic Offices, without the express written consent of the New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Dr. Schneekluth and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Schneekluth and
each Orthodontist (if any) providing services to enter into an agreement with
the New PC that upon termination of Dr.
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Schneekluth's or such Orthodontist's relationship with the New PC, for any
reason, tail insurance coverage will be purchased by Dr. Schneekluth or such
Orthodontist. Such provisions may be contained in an employment agreement,
restrictive covenant agreement or other agreement entered into by the New PC and
Dr. Schneekluth or the Orthodontist, and the New PC hereby covenants with the
MSO to enforce such provisions relating to the tail insurance coverage or to
provide such coverage at the expense of the New PC or Dr. Schneekluth or each
such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written
notice thereof has been given to the MSO by the New PC, the New PC may
terminate this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in
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Section 3 of that certain Stock Put/Call Option and Successor Designation
Agreement (the "Stock Put/Call Option and Successor Designation Agreement")
dated as of even date herewith, by and among the New PC, Dr. Schneekluth and the
Orthodontists (if any), OMEGA and the MSO.
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof , or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall materially default in the performance of
any other duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Schneekluth or any Orthodontist breaches or defaults
under his or her Employment Agreement and the New PC does not cause Dr.
Schneekluth or such Orthodontist to cure such breach or default within any
applicable grace period therefor, the MSO may give written notice of the
immediate termination of this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
The New PC hereby designates the MSO (and its designees) its authorized
agent and lawful attorney-in-fact for purposes of depositing payments, paying
accounts payables, signing checks, negotiating and signing contracts for
services or goods, securing loans or incurring obligations on behalf of the New
PC;
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provided, however, that all contracts or fees set for services on behalf of the
New PC will be subject to final approval and acceptance by the New PC.
Additionally, the New PC hereby irrevocably appoints the MSO (and its designees)
its authorized agent and lawful attorney-in-fact to collect all bills and
accounts receivable for professional fees, charges and other amounts and
authorizes the MSO through its designees to take possession of all checks, money
orders and similar instruments received as payment of receivables to be
deposited into the New PC Account. The New PC hereby irrevocably appoints the
MSO as the New PC's attorney-in-fact, with full power and authority in the place
and stead of the New PC, in the MSO's discretion, to endorse in the name of the
New PC any checks, payments, notes, insurance payments and money orders, to
withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are irrevocable. Third
parties and entities and persons not a party to this Agreement are entitled to
rely on the foregoing attorneys-in-fact and an affidavit of the MSO attesting
thereto. The acceptance of this appointment by the MSO shall not obligate it to
perform any duty or covenant required to be performed by the New PC under or by
virtue of this Agreement. Notwithstanding the foregoing powers of attorney, the
New PC shall at any time, on the request of the MSO, sign financing statements,
security agreements or other agreements necessary or advisable to accomplish the
purpose of this Agreement. Upon the New PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is authorized as
the agent of the New PC to sign any such instruments. The New PC may review all
deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business
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hours to the New PC's and the MSO's records, including, but not limited to,
records of collections, expenses and disbursements as kept by the MSO in
performing the MSO's obligations under this Agreement, and the New PC may copy
any or all such records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Dr. Schneekluth or any of its Orthodontists (if
any) and other Practice Providers, shall have complete control and supervision
over the professional aspects of the New PC's practice, as well as the provision
of all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The MSO may, however, advise
the New PC as to the relationship between its performance of orthodontic
functions and the overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from
seeking a preliminary injunction or other provisional relief, either prior
to or during the proceeding provided for in this section, if in its
judgment such action is necessary to avoid irreparable damage or to
preserve the status quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees owed by the
New PC to the MSO hereunder, and such determination shall not be subject
to the provisions of this Section 14.1. Disputes as to the proper
interpretation of the provisions of this Agreement which describe how
those amounts are to be calculated, however, shall be subject to the
provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement
in accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
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14.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
5112 Warner Avenue, Suite 104
Huntington Beach, California 92649
Attn: Clark E. Schneekluth, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of
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the performance of this Agreement, without the other party's or parties' (as the
case may be) written approval; provided, however, the foregoing shall not apply
to information which is required to be disclosed by Law, including federal or
state securities laws, or pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any mediation or arbitration or other legal
action or proceeding is brought to enforce this Agreement, because of any
alleged breach hereof, or for a declaration of any rights and obligations
hereunder, the prevailing party in such mediation or arbitration, action or
proceeding shall be entitled to recover its costs incurred therein, including
reasonable attorneys' fees, in addition to any other relief to which it may be
entitled, all as determined and awarded by the parties in such mediation or by
the arbitrator or court as
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part of its judgment or decision therein, as the case may be.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written
consent of both parties.
15.14 Severability. In the event any provision of this Agreement is held
by a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By:_______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF HUNTINGTON
BEACH, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
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SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Clark E. Schneekluth, D.D.S.
5112 Warner Avenue, Suite 104
Huntington Beach, California 92649
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SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Schneekluth Attach]
26
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SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO and the New PC have agreed that upon receipt of the Practice
Revenues each month, the compensation shall be paid to the MSO and the New PC as
follows:
1. First, the MSO Expenses shall be paid, until paid in full.
2. Second, to the extent that there are Practice Revenues remaining after
payment of the MSO Expenses, a monthly management fee of $3,333.33 shall be paid
to the MSO. Any portion of the management fee which is not paid shall accrue.
3. The balance, if any, of Practice Revenues received for the month,
remaining after payment of items 1 and 2 shall be considered profit, and
distributed as follows:
(a) First to the New PC, up to a monthly maximum of twenty-five
percent (25%) of Practice Revenue collected for such month.
(b) Any balance remaining after the payment of 3(a), shall be paid
to the MSO, up to an monthly maximum amount of the difference between
fifteen percent (15%) of Practice Revenue collected for such month less
$3,333.33.
At the end of each twelve (12) month period during the Term the MSO shall
provide the New PC with an unaudited internal accounting of the MSO Expenses,
prepared in accordance with the accrual method of accounting If the MSO Expenses
as reflected in such accounting as having been paid by the MSO are less than
sixty (60%) percent of the Practice Revenues for such twelve month period, fifty
(50%) percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
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Notwithstanding 3(a) above, each month during the term of this Agreement,
the New PC shall be entitled to a draw of the greater of the amounts payable
under 3(a), or $7,500. If the Practice Revenues are insufficient to support the
draw amount, the difference shall be paid by the MSO. The draw amount and the
actual compensation due the New PC under this Schedule 3 shall be reconciled at
the end of each year.
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EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Schneekluth Attach]
29
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Schneekluth Attach]
30
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
31
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AFFIDAVIT
I, Clark E. Schneekluth, D.D.S., declare:
I am an orthodontist, duly licensed in the State of California and I
practice through a professional corporation under the name ______________ (the
"New PC").
I have had substantial experience in the practice of the Orthodontics and
in managing and operating an orthodontic office.
In the course of operating orthodontic offices, I have acquired
significant knowledge as to the overhead costs incurred and gross receipts
generated by similar types of orthodontic offices. Further, I am fully aware of
the non-orthodontic, operational, accounting, billing, financing, management and
personnel requirements of an orthodontic office and the cost factors involved in
providing such management, personnel, accounting, billing, financing and
operation.
I have thoroughly reviewed the Management Services Agreement (the
"Agreement"), which is effective as of ________________, 1997, between the New
PC and Omega Orthodontics of Huntington Beach, Inc. (the "MSO") concerning the
duties, responsibilities and obligations undertaken by the MSO in managing and
operating all non-orthodontic aspects of the Orthodontic Office as contemplated
by the Agreement.
I have reviewed the prior operating financial statements of the
orthodontic office located at 5112 Warner Avenue, Suite 104, Huntington Beach,
California 92649 and an operating budget and estimated income of the orthodontic
office, which, in my opinion, can reasonably be expected from the operation of
said office.
In my opinion, based upon my experience, the Management Fees of ____
Percent (___%) of "Practice Revenues" to be charged by the MSO as contemplated
by the Agreement, will afford it a reasonable but not excessive return for its
services rendered and obligations incurred. In addition, the New PC ____ Percent
( %) of "Practice Revenues" retained by the New PC, will provide reasonable
earnings for the performance of orthodontic services.
I declare under penalty of perjury that the foregoing statement is true
and correct to the best of my knowledge and belief.
Executed at , ________ this day of , 1997.
____________________________
Clark E. Schneekluth, D.D.S.
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STATE OF CALIFORNIA
___________________, ss ________________, 1997
Then personally appeared the above-named Clark E. Schneekluth, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
33
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EXHIBIT D
SECURITY AGREEMENT
34
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, a California corporation (the "New PC"), and
Clark E. Schneekluth, D.D.S. ("Dr. Schneekluth") who is duly licensed to
practice orthodontics in the State and Omega Orthodontics of Huntington Beach,
Inc., a Delaware corporation (the "MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to all Practice
Revenue and the accounts receivable of patients of the New PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Dr. Schneekluth shall cause the New
PC to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
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<PAGE>
obligations of a secured party under the Uniform Commercial Code as adopted in
the state of California (the "State"). Such rights shall include, without
limitation, the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
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<PAGE>
B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Huntington Beach, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
5112 Warner Avenue, Suite 104
Huntington Beach, California 92649
Attn: Clark E. Schneekluth, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any
one or more defaults, if any, on the part of the other party, shall not be
construed to operate as a waiver of the other or future defaults under this
Agreement. This Security Agreement may be amended or modified only by the
written consent of both parties.
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10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
HUNTINGTON BEACH , INC.
By:____________________________ By:__________________________
Name: Name:
Title: Title:
DR. SCHNEEKLUTH:
_______________________________
Clark E. Schneekluth, D.D.S.
39
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EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
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2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with
each party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the concurrence of
the mediator.
3. Each party may be represented by more than one person, e.g., one or
more of its officers and an attorney. Each party will have a representative
fully authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party to
this mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the mediator and
documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as
an arbitrator, unless the
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parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall submit
the matter to binding arbitration in Boston, Massachusetts before a qualified
sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. If the party initially
raising the dispute to be resolved is New PC or Dr. Schneekluth, the arbitration
shall be held in Boston, Massachusetts, and if the party initially raising the
dispute to be resolved is the MSO or OMEGA, the arbitration shall be held in
Huntington Beach, California. The sole arbitrator shall be agreed upon by the
parties within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
42
Exhibit 10.8
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of Illinois (the "State"); Robert R.
Schmisseur, D.D.S. ("Dr. Schmisseur") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Champaign, Inc., a Delaware corporation
(the "MSO"), which is a wholly-owned subsidiary of OMEGA, with reference to the
following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Schmisseur,
Robert R. Schmisseur, D.D.S., P.C., an Illinois professional corporation, and
the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Schmisseur affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Schmisseur owns all of the capital stock (the "Capital Stock") of
the New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Schmisseur's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Schmisseur has agreed to grant to the MSO, and the MSO desires to acquire from
Dr. Schmisseur certain rights, including but not limited to, the right to
designate the successor purchaser (the "Designated Successor") of all or any
part of the issued and outstanding Capital Stock upon the occurrence of certain
events. In addition, under the Management Services Agreement, upon termination
thereof, each of the New PC and the MSO were granted certain rights to be set
forth in
<PAGE>
this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Schmisseur, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold improvements,
fixtures, furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made by
the MSO pursuant to the performance of its obligations under the Management
Services Agreement and all other assets, including inventory and supplies and
intangibles, set forth on the balance sheet as at the end of the month
immediately preceding the date of such termination or expiration prepared in
accordance with GAAP (the "Balance Sheet") to reflect operations of the MSO in
respect of the Orthodontic Offices, including depreciation, amortization and
other adjustments of such assets shown on such Balance Sheet; and
(b) Purchase from the MSO at book value any goodwill and other intangible
assets set forth on the Balance Sheet, and obtain from the MSO an assignment of
the restrictive covenants provided for in Section 3.7 of the Management Services
Agreement and in the applicable Employment Agreement with Dr. Schmisseur
contemplated thereunder; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties subleased
in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Schmisseur at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1
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thereof, to:
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the Orthodontic
Offices, including all replacements and additions thereto made by the MSO
pursuant to the performance of its obligations under the Management Services
Agreement and all other assets, including inventory and supplies and
intangibles, set forth on the Balance Sheet to reflect operations of the MSO in
respect of the Orthodontic Offices, including depreciation, amortization and
other adjustments of such assets shown on such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the restrictive
covenants provided for in Section 3.7 of the Management Services Agreement and
in the applicable Employment Agreement with Dr. Schmisseur contemplated
thereunder, and any goodwill and other intangible assets set forth on the
Balance Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which relate
solely to the performance of its obligations under the Management Services
Agreement or the properties subleased in respect of the Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Schmisseur under Section 2.1(b)(i) of the Affiliation
Agreement, plus (y) the original principal amount of the Purchase Note issued to
Dr. Schmisseur under Section 2.1(b)(ii) of the Affiliation Agreement, plus (z)
the value of that number of shares of Omega Common Stock issued to Dr.
Schmisseur under Section 2.1(b)(iii) of the Affiliation Agreement, such value to
be determined by multiplying such number of shares by the average of the last
sales (or closing) price for Omega's Common Stock on Nasdaq (or a national
securities exchange) for each of the sixty (60) trading days immediately
preceding the date the Call Option Notice is delivered to the MSO (collectively,
the "Call Price").*
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC, at its election, shall pay cash,
or a combination of cash, forgiveness of amounts due to Dr. Schmisseur under the
Purchase Note and/or return of the shares of Omega Common Stock received by Dr.
Schmisseur under Section 2.1(b)(iii) of the Affiliation Agreement, such shares
to be valued as provided for in Section 3 hereof, for the
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repurchased assets, whether the Put Price pursuant to exercise by the MSO of the
Put Option or the Call Price pursuant to exercise by the New PC of the Call
Option, as the case may be. The New PC and Dr. Schmisseur shall execute such
documents as may be required by the MSO to assume the liabilities set forth in
Section 2(c) or 3(c), as the case may be, and shall use their respective best
efforts to remove the MSO from any liability with respect to such repurchased
assets and with respect to any property leased or subleased by the MSO. From and
after any such Closing, each party shall provide to the other parties reasonable
access to books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations which may be required of it. In
addition, following any such Closing, the MSO or its designee shall have
reasonable access during normal business hours to the New PCs records, including
patient records regarding records of collections, expenses and disbursements as
kept by the MSO in performing its obligations under the Management Services
Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Successor Designation Option"),
which it shall be obligated hereby to exercise if it has not exercised the Put
Option to designate one or more Designated Successors, which person or persons
must be duly licensed orthodontists in the State or otherwise permitted by law
to be a shareholder in a professional corporation in the State, to purchase all
of the Capital Stock:
(i) the death of Dr. Schmisseur;
(ii) if Dr. Schmisseur is determined to be permanently disabled so as
to be unable to render any professional services on behalf of the New PC,
as determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Schmisseur voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Schmisseur acts in a criminally or grossly negligent
manner with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Schmisseur becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Schmisseur is convicted of a felony;
(vii) if Dr. Schmisseur loses his license or is otherwise determined
to be disqualified from rendering services as an orthodontist for the New
PC by the applicable
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dental or other comparable regulatory board of the State;
(viii) if Dr. Schmisseur's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the professional corporation statute
of the Laws of the State;
(ix) if Dr. Schmisseur voluntarily files a petition under any
bankruptcy or insolvency law or a petition for the appointment of a
receiver, or makes an assignment for the benefit of creditors;
(x) if Dr. Schmisseur is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr.
Schmisseur and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Schmisseur is required to transfer any shares of Capital
Stock by reason of a judgment, court order or decree or by operation of
law;
(xii) if Dr. Schmisseur retires within the meaning of Paragraph (c) of
this Section 5; or
(xiii) if Dr. Schmisseur desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 8 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of sixty (60) days, (i) prevents Dr. Schmisseur from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Schmisseur's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Schmisseur shall occur on the
date when Dr. Schmisseur voluntarily withdraws from the practice of orthodontics
at whatever age or for whatever reason and notifies the New PC that he desires
to be regarded as "Retired" and fails to have first proposed and obtained the
MSO's approval of a qualified successor orthodontist reasonably acceptable to
the MSO.
6. Successor Designation Option Exercise. Except as otherwise provided
herein, upon exercise of the Successor Designation Option, the Designated
Successor shall purchase all the Capital Stock.. The Successor Designation
Option shall also be exercisable by the MSO as provided in Section 8 below.
7. Exercise Notice. Any exercise of the Successor Designation Option shall
be accompanied by a written notice (the "Successor Designation Exercise Notice")
to Dr. Schmisseur (or his successor or representative), specifying the name,
address and information showing the
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qualifications and suitability of the Designated Successor to conduct or perform
professional services on behalf of the New PC. Upon the MSO's exercise of the
Successor Designation Option, Dr. Schmisseur shall execute a Non-Competition
Agreement in the form attached hereto as Exhibit C.
8. Right of First Refusal and Sale of Stock. If Dr. Schmisseur desires to
sell any of the Capital Stock to another orthodontist (a "Purchaser"), he shall
first give notice to the MSO of his intent to sell such Capital Stock ("Notice
of Sale"), giving to the MSO such information as shall be reasonably requested
by it to ascertain the qualifications and suitability of the Purchaser to
conduct or to perform professional services on behalf of the New PC and the
terms and conditions of such proposed sale to the Purchaser. Upon receipt of
such Notice, the Successor Designation Option of the MSO with respect to all of
the Capital Stock shall become exercisable for a period of three (3) months,
provided however, that the exercise price per share and terms of purchase of the
Capital Stock shall be no less favorable to Dr. Schmisseur than those set forth
in the Notice of Sale. In the event the Successor Designation Option is not
exercised during such three (3) month period, Dr. Schmisseur may sell the
Capital Stock to the Purchaser, with the consent of the MSO, which consent shall
not be unreasonably withheld, upon the terms and conditions set forth in the
Notice of Sale, provided however, that such sale shall be conditioned: (i) upon
the Purchaser joining in this Agreement and entering into an employment
agreement with the New PC on such terms and conditions as may be no more
favorable to the Purchaser than those applicable to Dr. Schmisseur, and (ii)
upon Dr. Schmisseur executing a Non-Competition Agreement in the form attached
hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so requires in this Agreement, the term "MSO"
shall be deemed to refer to an assignee holding an assignment of the Successor
Designation Option with respect to such Capital Stock, and the terms "party" and
"parties" shall be deemed to include that assignee.
10. Purchase Price of the Capital Stock. (a) The purchase price ("Purchase
Price") due and payable by the Designated Successor upon exercise of the
Successor Designation Option shall be an amount equal to the product of (a) the
aggregate net amount received by the New PC pursuant to Article 6 and Schedule 3
of the Management Services Agreement for the twelve (12) calendar months
immediately preceding the month in which the Successor Designation Exercise
Notice is delivered to Dr. Schmisseur (or his successor or representative)
multiplied by (b) a fraction, the numerator of which is the number of shares of
the Capital Stock to be purchased and the denominator of which is the total
number of shares of the Capital Stock outstanding at the time of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Successor Designation Option shall be paid by the Designated Successor executing
a full recourse, negotiable promissory note, secured by the Capital Stock of Dr.
Schmisseur. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate
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with monthly compounding published by the Internal Revenue Service from time to
time in accordance with Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision of the Code, provided however,
that the Designated Successor shall be permitted to prepay such note at any
time. Principal shall be payable in five equal annual installments commencing
six months after the closing date.
(c) Purchase From Dr. Schmisseur's Estate.
(i) Notwithstanding any other provision of this or any other Agreement
between the parties, a Designated Successor shall be obligated to purchase
all of Dr. Schmisseur's Capital Stock upon his death. Upon the death of Dr.
Schmisseur and receipt of notice of a Successor Designation Exercise
Notice, Dr. Schmisseur's personal representative shall apply for and obtain
any necessary court approval or confirmation of the sale of Dr.
Schmisseur's shares of Capital Stock pursuant to this Agreement. The
representative of the estate of Dr. Schmisseur and the Designated Successor
shall complete such sale as soon after the date of death as practicable,
but no later than 180 days after such event.
(ii) The death of Dr. Schmisseur's spouse, if any, shall not be
considered the death of Dr. Schmisseur for purposes of this Agreement.
(iii) The estate of Dr. Schmisseur shall bear, and hold the New PC
harmless from, all costs and expenses incurred as a result of securing any
court orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Schmisseur to transfer to the
Designated Successor full legal and equitable tax-free title to the Capital
Stock of Dr. Schmisseur.
(d) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Successor Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Successor Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Schmisseur hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Schmisseur ("Insurance Policies"). The life insurance
policy may be in an aggregate face amount of up to three times Dr. Schmisseur's
income, as shown on the W-2 Form prepared by the New PC for the most recent
calendar year. Dr. Schmisseur agrees, at the election of the MSO, to take
whatever actions are necessary to facilitate the acquisition of any such
Insurance Policy by the MSO.
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
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(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Schmisseur each represent and
warrant to the MSO and OMEGA that as of the day and year first above written and
during the term of this Agreement, Exhibit A is a true and complete listing of
the Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Schmisseur shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Schmisseur shall not permit
the New PC to, and the New PC shall not, during the term of this Agreement,
issue any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Dr.
Schmisseur shall execute and deliver in escrow to an agent reasonably acceptable
to the MSO (the MSO hereby acknowledges and agrees that the law firm of Meyer,
Capel, Hirschfeld, Muncy, Jahn & Aldeen, P.C., of Champaign, Illinois is so
acceptable) (the "Escrow Agent"), a sufficient number of assignments separate
from certificates, endorsed in blank to cover all of the Capital Stock (the
"Stock Power") held of record or beneficially owned by Dr. Schmisseur. Upon
execution of this Agreement, Dr. Schmisseur shall deliver to the Escrow Agent
all certificates heretofore issued representing all of the shares of Capital
Stock held of record or beneficially owned by Dr. Schmisseur. Each such
certificate shall have affixed to the back of the certificate a legend
substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to
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and restricted by a certain Stock Put/Call Option and Successor Designation
Agreement, dated ________, 1997, among the New PC, the holder hereof and
the MSO and OMEGA (as defined therein). The New PC will mail without charge
to any holder of these shares a copy of such agreement within five (5) days
of receipt by the New PC of a written request therefor."
Upon any exercise of the Successor Designation Option by the MSO, the
Escrow Agent shall be authorized to complete the Stock Powers, attach them to
the certificates and tender the same to the transfer agent for the New PC for
reissuance in the name of the Designated Successor. Upon any termination of this
Agreement without exercise of the Successor Designation Option, the Escrow Agent
shall return all such Stock Powers to Dr. Schmisseur.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Schmisseur, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and
year first above written and shall terminate upon the termination of the
Management Services Agreement or the exercise (and consummation of the
transaction provided for upon such exercise) of the Put Option, the Call Option
or the Successor Designation Option as to all of the Capital Stock, as the case
may be (the "Term").
17. General
(a) Compliance with Law. The New PC and Dr. Schmisseur shall comply with
all applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Schmisseur on the one hand and OMEGA and the MSO (or any assignee of the
MSO) on the other hand are acting in the capacity of the grantor and grantee of
an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by
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the New PC or Dr. Schmisseur without the prior written consent of the MSO and
OMEGA. This Agreement binds the successors, heirs, and authorized assignees of
the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Schmisseur: Robert R. Schmisseur, D.D.S.
1701 South Prospect
Champaign, Illinois 61820
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Schmisseur and the MSO and OMEGA
each shall bear their own expenses, including, without limitation, attorneys'
and accountants' fees, incurred in connection with the preparation of this
Agreement and the transactions contemplated hereby.
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(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 18, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary:
(i) Nothing in this Section 18 shall preclude any party from seeking a
preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) INTENTIONALLY OMITTED
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18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
IN WITNESS WHEREOF, the New PC, Dr. Schmisseur, MSO and OMEGA have executed
this Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
___________________, INC.,
an Illinois corporation
By: ______________________________
________________, President
DR. SCHMISSEUR
____________________________
Robert R. Schmisseur, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF CHAMPAIGN, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
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"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
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SPOUSAL JOINDER AND CONSENT
I am the spouse of Robert R. Schmisseur, D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this _________ day of ________________, 1997.
Signature:_____________________
Printed or Typed Name:
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EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Schmisseur Attach]
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EXHIBIT B
STOCK
[Dr. Schmisseur attach]
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EXHIBIT C
NON-COMPETITION AGREEMENT
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EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
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1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
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proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration before a qualified sole arbitrator in accordance with the then
current CPR Rules for Non-Administered Arbitration of Business Disputes. The
sole arbitrator shall be agreed upon by the parties within twenty (20) days
after either party elects to submit any issue to arbitration or, failing that,
shall be selected by CPR. A qualified arbitrator is one who is familiar with the
principal subject matter of the issues to be arbitrated such as by way of
example, healthcare services industry matters, management consulting services
generally or business law/corporate matters generally. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The
arbitrator shall not have the authority to award multiple, punitive or
consequential damages under any circumstances. If the party initially raising
the dispute to be resolved is New PC or Dr. Schmisseur, the arbitration shall be
held in Boston, Massachusetts, and if the party initially raising the dispute to
be resolved is the MSO or OMEGA, the arbitration shall be held in Chicago,
Illinois. be held in Chicago, Illinois.
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Exhibit 10.9
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of Colorado (the "State"); Theodore G.
Saydyk, Jr., D.D.S. ("Dr. Saydyk") who is duly licensed to practice orthodontics
in the State; Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and
Omega Orthodontics of Colorado Springs, Inc., a Delaware corporation (the
"MSO"), which is a wholly-owned subsidiary of OMEGA, with reference to the
following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Saydyk,
Theodore G. Saydyk, Jr., D.D.S., P.C., a Colorado professional corporation, and
the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Saydyk affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Saydyk owns all of the capital stock (the "Capital Stock") of the
New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Saydyk's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Saydyk has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Saydyk certain rights, including but not limited to, the right to designate the
successor purchaser (the "Designated Successor") of all or any part of the
issued and outstanding Capital Stock upon the occurrence of certain events. In
addition, under the Management Services Agreement, upon termination thereof,
each of the New PC and the MSO were granted certain rights to be set forth in
this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Saydyk, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, but not Dr. Saydyk individually, upon termination of the Management
Services Agreement by the MSO under Section 10.2 thereof or upon expiration of
the Term of the Management Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Saydyk contemplated thereunder,
and any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Saydyk at least twenty (20) calendar days
prior to the date specified in such notice as the date for the closing of the
Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1
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thereof, to:
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made
by the MSO pursuant to the performance of its obligations under the
Management Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the Balance Sheet to reflect
operations of the MSO in respect of the Orthodontic Offices, including
depreciation, amortization and other adjustments of such assets shown on
such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Dr.
Saydyk contemplated thereunder, and any goodwill and other intangible
assets set forth on the Balance Sheet, reflecting amortization or
depreciation of the restrictive covenants, and any goodwill and other
intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Saydyk under Section 2.1(b)(i) of the Affiliation Agreement,
plus (y) the original principal amount of the Purchase Note issued to Dr. Saydyk
under Section 2.1(b)(ii) of the Affiliation Agreement, plus (z) the value of
that number of shares of Omega Common Stock issued to Dr. Saydyk under Section
2.1(b)(ii) of the Affiliation Agreement, such value to be determined by
multiplying such number of shares by the average of the last sales (or closing)
price for Omega's Common Stock on Nasdaq (or a national securities exchange) for
each of the sixty (60) trading days immediately preceding the date the Call
Option Notice is delivered to the MSO (collectively, the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC shall pay cash, or, with the
consent of Dr. Saydyk, a combination of cash, forgiveness of amounts due to Dr.
Saydyk under the Purchase Note and/or and return of the shares of Omega Common
Stock received by Dr. Saydyk under Section 2.1(b)(iii) of the Affiliation
Agreement, such shares to be valued as provided for in Section 3
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hereof, pursuant to exercise by the New PC of the Call Option, as the case may
be. The New PC shall execute such documents as may be required by the MSO to
assume the liabilities set forth in Section 2(c) or 3(c), as the case may be,
and shall use their respective best efforts to remove the MSO from any liability
with respect to such repurchased assets and with respect to any property leased
or subleased by the MSO. From and after any such Closing, each party shall
provide to the other parties reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it. In addition, following any such
Closing, the MSO or its designee shall have reasonable access during normal
business hours to the New PCs records, including patient records regarding
records of collections, expenses and disbursements as kept by the MSO in
performing its obligations under the Management Services Agreement, and the MSO
may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Designated Successor Option") to
designate a Designated Successor to purchase all or any portion of the Capital
Stock then held by Dr. Saydyk:
(i) the death of Dr. Saydyk;
(ii) if Dr. Saydyk is determined to be Permanently Disabled (as
defined below) so as to be unable to render any professional services on
behalf of the New PC, as determined in accordance with paragraph (b) of
this Section 5 below;
(iii) if Dr. Saydyk voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Saydyk acts in a criminally or grossly negligent manner
with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Saydyk becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Saydyk is convicted of a felony;
(vii) if Dr. Saydyk loses his license or is otherwise determined to be
disqualified from rendering services as an orthodontist for the New PC by
the applicable dental or other comparable regulatory board of the State;
(viii) if Dr. Saydyk's shares of Capital Stock are or are to be
transferred voluntarily
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<PAGE>
or by operation of law to any person who is a "disqualified person," as
defined in the professional corporation statute of the Laws of the State;
(ix) if Dr. Saydyk voluntarily files a petition under any bankruptcy
or insolvency law or
a petition for the appointment of a receiver, or makes an assignment for
the benefit of creditors;
(x) if Dr. Saydyk is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr.
Saydyk and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Saydyk is required to transfer any shares of Capital Stock
by reason of a judgment, court order or decree or by operation of law;
(xii) if Dr. Saydyk retires within the meaning of Paragraph (c) of
this Section 5; or
(xiii) if Dr. Saydyk desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means either (1) any
illness, injury, disease or condition other than the " Pre-Existing Medical
Condition" (as defined below), whether mental or physical, which, for a
continuous period of thirty (30) days, (i) prevents Dr. Saydyk from performing
his duties competently and adequately, as determined in accordance with the
alternative dispute resolution procedures in Section 18 and Schedule D, or (ii)
substantially impairs the New PC's or Dr. Saydyk's ability to practice
orthodontics; or (2) either or both of the Pre-Existing Medical Condition, which
for a continuous period of three hundred and sixty five (365) days or more than
a total of five hundred (500) days over the period of two calendar years, (i)
prevent Dr. Saydyk from practicing orthodontics for the New PC for the "Average
Weekly Hours" (as defined below), or (ii) substantially impairs the New PC's or
Dr. Saydyk's ability to practice orthodontics. As used in this Agreement,
"Pre-Existing Medical Condition" means either or both of Dr. Saydyk's two
pre-existing medical conditions previously disclosed to OMEGA, and "Average
Weekly Hours" means a number which is equal to: (a) the total number of hours
Dr. Saydyk practiced orthodontics over the immediately preceding one hundred
fifty-six (156) weeks, excluding therefrom those weeks where Dr. Saydyk was
absent from the office for any portion of the week for any reason other than
vacations and holidays, divided by the number of weeks Dr. Saydyk practiced
orthodontics and was not absent for such reasons.
(c) For purposes hereof, "Retirement" of Dr. Saydyk shall occur on the date
when Dr. Saydyk voluntarily withdraws from the practice of orthodontics at
whatever age or for whatever reason and notifies the New PC that he desires to
be regarded as "Retired" and fails to have first proposed and obtained the MSO's
approval of a qualified successor orthodontist reasonably acceptable to the MSO.
(d) For purposes hereof, "Voluntary Termination" of Dr. Saydyk shall occur
on the date when Dr. Saydyk voluntarily withdraws from the practice of
orthodontics for whatever reason and
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<PAGE>
notifies the New PC that he desires to be regarded as "Voluntarily Terminated"
and fails to have first proposed and obtained the MSO's approval of a qualified
successor orthodontist reasonably acceptable to the MSO.
6. Successor Designation Option Exercise. Except as otherwise provided in
(b) below and otherwise herein, upon exercise of the Successor Designation
Option, the Designated Successor may purchase all or any part of the Capital
Stock. The failure of the MSO to exercise this Successor Designation Option as
to all of the Capital Stock at any one time shall not limit the MSO's right to
exercise the Successor Designation Option with respect to any remaining Capital
Stock at any time during the term of this Agreement. The Successor Designation
Option shall also be exercisable by the MSO as provided in Section 8 below.
(b) In the event that the MSO is entitled to exercise the Successor
Designation Option solely due to the Section 5(b)(2), in that the Pre-Existing
Medical Condition has for a continuous period of three hundred and sixty five
(365) days or more than a total of five hundred days over the period of two
calendar years, either prevented Dr. Saydyk from performing his duties
competently and adequately as determined by the MSO, or substantially impaired
the New PC's or Dr. Saydyk's ability to practice orthodontics, then in such
case, the Designated Successor may purchase fifty percent (50%) of the Capital
Stock.
7. Exercise Notice. Any exercise of the Successor Designation Option shall
be accompanied by a written notice (the "Successor Designation Exercise Notice")
to Dr. Saydyk (or his successor or representative), specifying the name, address
and information showing the qualifications and suitability of the Designated
Successor to conduct or perform professional services on behalf of the New PC
and number of shares of Capital Stock of Dr. Saydyk as to which the Successor
Designation Option is being exercised. Upon the MSO's exercise of the Successor
Designation Option in respect of any event described in Section 5(a)(iii) or (x)
as to all of the shares of Capital Stock of Dr. Saydyk, Dr. Saydyk shall execute
a Non-Competition Agreement in the form attached hereto as Exhibit C. The MSO
may, at any time, cancel any Successor Designation Exercise Notice sent by it
hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Saydyk desires to sell
any of the Capital Stock to another orthodontist (a "Purchaser"), he shall first
give notice to the MSO of his intent to sell such Capital Stock ("Notice of
Sale"), giving to the MSO such information as shall be reasonably requested by
it to ascertain the qualifications and suitability of the Purchaser to conduct
or to perform professional services on behalf of the New PC and the terms and
conditions of such proposed sale to the Purchaser. Upon receipt of such Notice,
the Successor Designation Option of the MSO shall become exercisable for a
period of three (3) months, provided however, that the exercise price and terms
of purchase of the Capital Stock shall be no less favorable to Dr. Saydyk than
those set forth in the Notice of Sale. In the event the Successor Designation
Option is not exercised during such three (3) month period, Dr. Saydyk may sell
the Capital Stock to the Purchaser, with the consent of the MSO, which consent
shall not be unreasonably withheld, upon the terms and conditions set forth in
the Notice of Sale, provided however, that such sale shall be conditioned: (i)
upon the Purchaser joining in this Agreement and entering into an employment
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agreement with the New PC on such terms and conditions as may be approved by the
MSO, and (ii) upon Dr. Saydyk executing a Non-Competition Agreement in the form
attached hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so
requires in this Agreement, the term "MSO" shall be deemed to refer to an
assignee holding an assignment of the Successor Designation Option with respect
to such Capital Stock, and the terms "party" and "parties" shall be deemed to
include that assignee.
10. Purchase Price of the Capital Stock. (a) The purchase price ("Purchase
Price") due and payable by the Designated Successor upon exercise of the
Successor Designation Option shall be an amount equal to the product of (a) the
aggregate net amount received by the New PC pursuant to Article 6 and Schedule 3
of the Management Services Agreement for the twelve (12) calendar months
immediately preceding the month in which the Successor Designation Exercise
Notice is delivered to Dr. Saydyk (or his successor or representative)
multiplied by (b) a fraction, the numerator of which is the number of shares of
the Capital Stock to be purchased and the denominator of which is the total
number of shares of the Capital Stock outstanding at the time of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Successor Designation Option shall be paid by the Designated Successor executing
a nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Saydyk. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate with monthly
compounding published by the Internal Revenue Service from time to time in
accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision of the Code, provided however, that the
Designated Successor shall be permitted to prepay such note at any time.
Principal shall be payable in five equal annual installments commencing six
months after the closing date.
(c) Purchase From Dr. Saydyk's Estate.
(i) Upon the death of Dr. Saydyk and receipt of notice of a Successor
Designation Exercise Notice, Dr. Saydyk's personal representative shall
apply for and obtain any necessary court approval or confirmation of the
sale of Dr. Saydyk's shares of Capital Stock pursuant to this Agreement.
The representative of the estate of Dr. Saydyk and the Designated Successor
shall complete such sale as soon after the date of death as practicable,
but no later than 180 days after such event.
(ii) The death of Dr. Saydyk's spouse, if any, shall not be considered
the death of Dr. Saydyk for purposes of this Agreement.
(iii) The estate of Dr. Saydyk shall bear, and hold the New PC
harmless
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from, all costs and expenses incurred as a result of securing any court
orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Saydyk to transfer to the Designated
Successor full legal and equitable tax-free title to the Capital Stock of
Dr. Saydyk.
(b) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Successor Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Successor Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Saydyk hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Saydyk ("Insurance Policies"). The life insurance policy
may be in an aggregate face amount of up to three times Dr. Saydyk's income, as
shown on the W-2 Form prepared by the New PC for the most recent calendar year.
Dr. Saydyk agrees, at the election of the MSO, to take whatever actions are
necessary to facilitate the acquisition of any such Insurance Policy by the MSO.
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Saydyk each represent and warrant
to the MSO and OMEGA that as of the day and year first above written and during
the term of this Agreement, Exhibit A is a true and complete listing of the
Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Saydyk shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
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(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Saydyk shall not permit the
New PC to, and the New PC shall not, during the term of this Agreement, issue
any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Dr. Saydyk
shall execute and deliver to the MSO, a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Stock (the
"Stock Power") held of record or beneficially owned by Dr. Saydyk. Upon
execution of this Agreement, Dr. Saydyk shall deliver to the MSO all
certificates heretofore issued representing all of the shares of Capital Stock
held of record or beneficially owned by Dr. Saydyk. Each such certificate shall
have affixed to the back of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement, dated ,
1997, among the New PC, the holder hereof and the MSO and OMEGA (as defined
therein). The New PC will mail without charge to any holder of these shares
a copy of such agreement within five (5) days of receipt by the New PC of a
written request therefor."
Upon any exercise of the Successor Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to the certificates and tender the same to the transfer
agent for the New PC for reissuance in the name of the Designated Successor.
Upon any termination of this Agreement without exercise of the Successor
Designation Option, the MSO shall return all such Stock Powers to Dr. Saydyk.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Saydyk, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put
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Option, the Call Option or the Successor Designation Option as to all of the
Capital Stock, as the case may be (the "Term").
17. General
(a) Compliance with Law. The New PC and Dr. Saydyk shall comply with all
applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Saydyk on the one hand and OMEGA and the MSO (or any assignee of the
MSO) on the other hand are acting in the capacity of the grantor and grantee of
an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by the New PC or Dr. Saydyk without the prior written
consent of the MSO and OMEGA. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Saydyk: Theodore G. Saydyk, Jr., D.D.S.
1317 North Academy Boulevard, Suite 203
Colorado Springs, Colorado 80909
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
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<PAGE>
Acton, CA 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Saydyk and the MSO and OMEGA each
shall bear their own expenses, including, without limitation, attorneys' and
accountants' fees, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
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<PAGE>
18. Alternative Dispute Resolution.
18.1 General. (a) If a dispute arises under this Agreement which cannot be
resolved informally by the parties, any party may invoke the procedures set
forth in Exhibit D hereto and the parties agree to use these procedures, except
paragraph (b) of this Section 18, prior to any party pursuing other available
remedies. The parties will meet and attempt in good faith to resolve any
controversy or claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary, nothing in
this Section 18 shall preclude any party from seeking a preliminary injunction
or other provisional relief, either prior to or during the proceeding provided
for in this section, if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.
18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
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<PAGE>
IN WITNESS WHEREOF, the New PC, Dr. Saydyk, MSO and OMEGA have executed
this Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
___________________, INC.,
a Colorado corporation
By: _______________________________
____________________, President
DR. SAYDYK
___________________________________
Theodore G. Saydyk, Jr., D.D.S.
"MSO"
OMEGA ORTHODONTICS OF COLORADO SPRINGS, INC.
a Delaware corporation
By: ________________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_________________________________
Robert J. Schulhof, President and
Chief Executive Officer
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<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Theodore G. Saydyk, Jr., D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joiner and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joiner and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this ______ day of______________________, 1997.
Signature:_______________________________________
Printed or Typed Name:
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<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Saydyk Attach]
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<PAGE>
EXHIBIT B
STOCK
[Dr. Saydyk attach]
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<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
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<PAGE>
EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five (5) business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
7. Notwithstanding anything to the contrary in this Exhibit D, if a dispute
arises concerning Dr. Saydyk ability to perform his duties competently and
adequately, the parties agree to
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<PAGE>
utilize the procedures set forth in this Exhibit D to resolve such dispute by
mediation within thirty (30) days after the day written notice is given under
number one above that such a dispute exists. In order to meet the thirty (30)
day deadline, the parties agree that the timeframes in numbers 1, 2 and 4 above
shall be reduced to two (2) days, the timeframe in number 3 shall be reduced to
five (5) days, and that the timeframe in number 6 above shall be reduced to
twelve (12) days.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
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(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. If the party initially raising the dispute to be resolved is
New PC or Dr. Saydyk, the arbitration shall be held in Boston, Massachusetts,
and if the party initially raising the dispute to be resolved is the MSO or
OMEGA, the arbitration shall be held in Denver, Colorado. The sole arbitrator
shall be agreed upon by the parties within twenty (20) days after either party
elects to submit any issue to arbitration or, failing that, shall be selected by
CPR. A qualified arbitrator is one who is familiar with the principal subject
matter of the issues to be arbitrated such as by way of example, healthcare
services industry matters, management consulting services generally or business
law/corporate matters generally. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator shall
not have the authority to award multiple, punitive or consequential damages
under any circumstances.
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<PAGE>
Notwithstanding anything to the contrary in this Section C of Exhibit D, if
a dispute arises concerning Dr. Saydyk's ability to perform his duties
competently and adequately, and the parties are unable to resolve such dispute
by mediation, the parties agree to utilize the procedures set forth in this
Section C of Exhibit D to resolve such dispute by arbitration, and to agree to
the sole arbitrator within ten (10) days after the end of thirty (30) day period
provided in Number 7 of Part A above, and to proceed with the arbitration as
quickly as possible so that a judgment may be awarded within seventy-five (75)
days of the date written notice of the dispute is given under number 1 of
Section A.
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Exhibit 10.10
Stock Put/call Option And Successor Designation Agreement
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of California (the "State"); Scott E.
Feldman, D.D.S. ("Dr. Feldman") who is duly licensed to practice orthodontics in
the State; Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and Omega
Orthodontics of Woodland Hills, Inc., a Delaware corporation (the "MSO"), which
is a wholly-owned subsidiary of OMEGA, with reference to the following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Feldman, Scott
E. Feldman, D.D.S., M.S., a California professional corporation, and the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Feldman affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Feldman owns all of the capital stock (the "Capital Stock") of the
New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Feldman's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Feldman has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Feldman certain rights, including but not limited to, the right to designate the
successor purchaser (the "Designated Successor") of all or any part of the
issued and outstanding Capital Stock upon the occurrence of certain events. In
addition, under the Management Services Agreement, upon termination thereof,
each of the New PC and the MSO were granted certain rights to be set forth in
this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Feldman, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Feldman contemplated thereunder,
and any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Feldman at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1
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thereof, to:
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made
by the MSO pursuant to the performance of its obligations under the
Management Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the Balance Sheet to reflect
operations of the MSO in respect of the Orthodontic Offices, including
depreciation, amortization and other adjustments of such assets shown on
such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Dr.
Feldman contemplated thereunder, and any goodwill and other intangible
assets set forth on the Balance Sheet, reflecting amortization or
depreciation of the restrictive covenants, and any goodwill and other
intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Feldman under Section 2.1(b)(i) of the Affiliation Agreement,
plus (y) the original principal amount of the Purchase Note issued to Dr.
Feldman Section 2.1(b)(ii) of the Affiliation Agreement, plus (z) the value of
that number of shares of Omega Common Stock issued to Dr. Feldman under Section
2.1(b)(iii) of the Affiliation Agreement, such value to be determined by
multiplying such number of shares by the average of the last sales (or closing)
price for Omega's Common Stock on Nasdaq (or a national securities exchange) for
each of the sixty (60) trading days immediately preceding the date the Call
Option Notice is delivered to the MSO (collectively, the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the
MSO of the Put Option under Section 2 or of the exercise by the New PC of the
Call Option under Section 3, as the case may be, shall be at the offices of
Robinson & Cole, One Boston Place, Boston, Massachusetts 02108 on the date
specified for such Closing in the written notice of election to exercise such
Put Option or Call Option, as the case may be, or on such other date as the
parties may mutually determine. At the Closing, the New PC, at its election,
shall pay cash, or a combination of cash and return of the shares of Omega
Common Stock received by Dr. Feldman under Section 2.1(b)(ii) of the Affiliation
Agreement, such shares to be valued as provided for in Section 3 hereof,
pursuant to exercise by the New PC of the Call Option, as the case may be. The
New PC and Dr. Feldman shall
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execute such documents as may be required by the MSO to assume the liabilities
set forth in Section 2(c) or 3(c), as the case may be, and shall use their
respective best efforts to remove the MSO from any liability with respect to
such repurchased assets and with respect to any property leased or subleased by
the MSO. From and after any such Closing, each party shall provide to the other
parties reasonable access to books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it. In addition, following any such Closing, the MSO or its designee
shall have reasonable access during normal business hours to the New PCs
records, including patient records regarding records of collections, expenses
and disbursements as kept by the MSO in performing its obligations under the
Management Services Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Designated Successor Option") to
designate a Designated Successor to purchase all or any portion of the Capital
Stock then held by Dr. Feldman:
(i) the death of Dr. Feldman;
(ii) if Dr. Feldman is determined to be permanently disabled so as to
be unable to render any professional services on behalf of the New PC, as
determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Feldman voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Feldman acts in a criminally or grossly negligent manner
with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Feldman becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Feldman is convicted of a felony;
(vii) if Dr. Feldman loses his license or is otherwise determined to
be disqualified from rendering services as an orthodontist for the New PC
by the applicable dental or other comparable regulatory board of the State;
(viii) if Dr. Feldman's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the
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professional corporation statute of the Laws of the State;
(ix) if Dr. Feldman voluntarily files a petition under any bankruptcy
or insolvency law or a petition for the appointment of a receiver, or makes
an assignment for the benefit of creditors;
(x) if Dr. Feldman is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr.
Feldman and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Feldman is required to transfer any shares of Capital
Stock by reason of a judgment, court order or decree or by operation of
law;
(xii) if Dr. Feldman retires within the meaning of Paragraph (c) of
this Section 5; or
(xiii) if Dr. Feldman desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of thirty (30) days, (i) prevents Dr. Feldman from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Feldman's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Feldman shall occur on the
date when Dr. Feldman voluntarily withdraws from the practice of orthodontics at
whatever age or for whatever reason and notifies the New PC that he desires to
be regarded as "Retired" and fails to have first proposed and obtained the MSO's
approval of a qualified successor orthodontist reasonably acceptable to the MSO.
6. Successor Designation Option Exercise. Except as otherwise provided
herein, upon exercise of the Successor Designation Option, the Designated
Successor may purchase all or any part of the Capital Stock. The failure of the
MSO to exercise this Successor Designation Option as to all of the Capital Stock
at any one time shall not limit the MSO's right to exercise the Successor
Designation Option with respect to any remaining Capital Stock at any time
during the term of this Agreement. The Successor Designation Option shall also
be exercisable by the MSO as provided in Section 8 below.
7. Exercise Notice. Any exercise of the Successor Designation Option shall
be accompanied by a written notice (the "Successor Designation Exercise Notice")
to Dr. Feldman (or his successor or representative), specifying the name,
address and information showing the qualifications and suitability of the
Designated Successor to conduct or perform professional services on behalf of
the New PC and number of shares of Capital Stock of Dr. Feldman as to which the
Successor Designation Option is being exercised. Upon the MSO's exercise of the
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Successor Designation Option in respect of any event described in Section
5(a)(iii) or (x) as to all of the shares of Capital Stock of Dr. Feldman,
Feldman shall execute a Non-Competition Agreement in the form attached hereto as
Exhibit C. The MSO may, at any time, cancel any Successor Designation Exercise
Notice sent by it hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Feldman to sell any of
the Capital Stock to another orthodontist (a "Purchaser"), he shall first give
notice to the MSO of his intent to sell such Capital Stock ("Notice of Sale"),
giving to the MSO such information as shall be reasonably requested by it to
ascertain the qualifications and suitability of the Purchaser to conduct or to
perform professional services on behalf of the New PC and the terms and
conditions of such proposed sale to the Purchaser. Upon receipt of such Notice,
the Successor Designation Option of the MSO shall become exercisable for a
period of three (3) months, provided however, that the exercise price and terms
of purchase of the Capital Stock shall be no less favorable to Dr. Feldman than
those set forth in the Notice of Sale. In the event the Successor Designation
Option is not exercised during such three (3) month period, Dr. Feldman may sell
the Capital Stock to the Purchaser, with the consent of the MSO, which consent
shall not be unreasonably withheld, upon the terms and conditions set forth in
the Notice of Sale, provided however, that such sale shall be conditioned: (i)
upon the Purchaser joining in this Agreement and entering into an employment
agreement with the New PC on such terms and conditions as may be approved by the
MSO, and (ii) upon Dr. Feldman executing a Non-Competition Agreement in the form
attached hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so requires in this Agreement, the term "MSO"
shall be deemed to refer to an assignee holding an assignment of the Successor
Designation Option with respect to such Capital Stock, and the terms "party" and
"parties" shall be deemed to include
10. Purchase Price of the Capital Stock.
(a) The purchase price ("Purchase Price") due and payable by the Designated
Successor upon exercise of the Successor Designation Option shall be an amount
equal to the product of (a) the aggregate net amount received by the New PC
pursuant to Article 6 and Schedule 3 of the Management Services Agreement for
the twelve (12) calendar months immediately preceding the month in which the
Successor Designation Exercise Notice is delivered to Dr. Feldman (or his
successor or representative) multiplied by (b) a fraction, the numerator of
which is the number of shares of the Capital Stock to be purchased and the
denominator of which is the total number of shares of the Capital Stock
outstanding at the time of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Successor Designation Option shall be paid by the Designated Successor executing
a nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Feldman. The note shall be for a
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term of five years, with interest payable quarterly in arrears at the mid-term
Applicable Federal Rate with monthly compounding published by the Internal
Revenue Service from time to time in accordance with Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code") or any successor
provision of the Code, provided however, that the Designated Successor shall be
permitted to prepay such note at any time. Principal shall be payable in five
equal annual installments commencing six months after the closing date.
(c) Purchase From Dr. Feldman's Estate.
(i) Upon the death of Dr. Feldman and receipt of notice of a Successor
Designation Exercise Notice, Dr. Feldman's personal representative shall
apply for and obtain any necessary court approval or confirmation of the
sale of Dr. Feldman's shares of Capital Stock pursuant to this Agreement.
The representative of the estate of Dr. Feldman and the Designated
Successor shall complete such sale as soon after the date of death as
practicable, but no later than 180 days after such event.
(ii) The death of Dr. Feldman's spouse, if any, shall not be
considered the death of Dr. Feldman for purposes of this Agreement.
(iii) The estate of Dr. Feldman shall bear, and hold the New PC
harmless from, all costs and expenses incurred as a result of securing any
court orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Feldman to transfer to the Designated
Successor full legal and equitable tax-free title to the Capital Stock of
Dr. Feldman.
(d) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Successor Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Successor Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Feldman hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Feldman ("Insurance Policies"). The life insurance
policy may be in an aggregate face amount of up to three times Dr. Feldman's
income, as shown on the W-2 Form prepared by the New PC for the most recent
calendar year. Dr. Feldman agrees, at the election of the MSO, to take whatever
actions are necessary to facilitate the acquisition of any such Insurance Policy
by the MSO.
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this
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Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Feldman each represent and warrant
to the MSO and OMEGA that as of the day and year first above written and during
the term of this Agreement, Exhibit A is a true and complete listing of the
Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Feldman shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Feldman shall not permit the
New PC to, and the New PC shall not, during the term of this Agreement, issue
any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Dr. Feldman
shall execute and deliver to the MSO, a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Stock (the
"Stock Power") held of record or beneficially owned by Dr. Feldman. Upon
execution of this Agreement, Dr. Feldman shall deliver to the MSO all
certificates heretofore issued representing all of the shares of Capital Stock
held of record or beneficially owned by Dr. Feldman. Each such certificate shall
have affixed to the back of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement, dated
_____________ , 1997, among the New PC, the holder hereof and the MSO and
OMEGA (as defined therein). The New PC will mail without charge to any
holder of these shares a copy of such agreement within five (5) days of
receipt by the New PC of a written request therefor."
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<PAGE>
Upon any exercise of the Successor Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to the certificates and tender the same to the transfer
agent for the New PC for reissuance in the name of the Designated Successor.
Upon any termination of this Agreement without exercise of the Successor
Designation Option, the MSO shall return all such Stock Powers to Dr. Feldman.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Feldman, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put Option, the Call Option or the Successor
Designation Option as to all of the Capital Stock, as the case may be (the
"Term").
17. General
(a) Compliance with Law. The New PC and Dr. Feldman shall comply with all
applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Feldman on the one hand and OMEGA and the MSO (or any assignee of the
MSO) on the other hand are acting in the capacity of the grantor and grantee of
an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by the New PC or Dr. Feldman without the prior written
consent of the MSO and OMEGA. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together
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shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Feldman: Scott E. Feldman, D.D.S.
6325 Topanga Canyon Boulevard. No. 424
Woodland Hills, CA 91367
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Feldman and the MSO and OMEGA each
shall bear their own expenses, including, without limitation, attorneys' and
accountants' fees, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement
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in each and every provision hereof of which time of performance is a factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 18, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary, nothing in
this Section 18 shall preclude any party from seeking a preliminary injunction
or other provisional relief, either prior to or during the proceeding provided
for in this section, if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.
18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free
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<PAGE>
will, and that it has had the opportunity to discuss this waiver with counsel.
Each party further acknowledges that it has read and understands the meaning and
ramifications of this waiver provision.
IN WITNESS WHEREOF, the New PC, Dr. Feldman, MSO and OMEGA have executed
this Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
___________________, INC.,
a California corporation
By: ______________________________
________________, President
DR. FELDMAN
_________________________________
Scott E. Feldman, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
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<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Scott E. Feldman, D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this _______ day of___________________, 1997.
Signature:_____________________________________
Printed or Typed Name:
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EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Feldman Attach]
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EXHIBIT B
STOCK
[Dr. Feldman attach]
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EXHIBIT C
NON-COMPETITION AGREEMENT
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<PAGE>
EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A.Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals
or the American Arbitration Association ("AAA"), with the assistance of CPR or
AAA, unless the parties agree otherwise in finding a mutually acceptable
mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR or AAA.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR or AAA.
B. Mediation procedures
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1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
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proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes or comparable AAA rules. The arbitration shall be held in
Woodland Hills, California. The sole arbitrator shall be agreed upon by the
parties within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR or AAA A qualified
arbitrator is one who is familiar with the principal subject matter of the
issues to be arbitrated such as by way of example, healthcare services industry
matters, management consulting services generally or business law/corporate
matters generally. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator shall not have the
authority to award multiple, punitive or consequential damages under any
circumstances.
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Exhibit 10.11
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of Texas (the "State"); Jeff S.
Zapalac, D.D.S., Inc. ("Dr. Zapalac") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Austin, Inc., a Delaware corporation (the
"MSO"), which is a wholly-owned subsidiary of OMEGA, with reference to the
following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Zapalac, Jeff
S. Zapalac, D.D.S., M.S., Inc., a Texas professional corporation, and the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Zapalac affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Zapalac owns all of the capital stock (the "Capital Stock") of the
New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Zapalac's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Zapalac has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Zapalac certain rights, including but not limited to, the right to designate the
successor purchaser (the "Designated Successor") of all or any part of the
issued and outstanding Capital Stock upon the occurrence of certain events. In
addition, under the Management Services Agreement, upon termination thereof,
each of the New PC and the MSO were granted certain rights to be set forth in
this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Zapalac, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Zapalac contemplated thereunder,
and any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Zapalac at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1
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thereof, to:
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made
by the MSO pursuant to the performance of its obligations under the
Management Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the Balance Sheet to reflect
operations of the MSO in respect of the Orthodontic Offices, including
depreciation, amortization and other adjustments of such assets shown on
such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the right to
receive payments for breach of the restrictive covenants provided for in
Section 3.7 of the Management Services Agreement and in the applicable
Employment Agreement with Dr. Zapalac contemplated thereunder, and any
goodwill and other intangible assets set forth on the Balance Sheet,
reflecting amortization or depreciation of the restrictive covenants, and
any goodwill and other intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Zapalac under Section 2.1(b)(i) of the Affiliation Agreement,
plus (y) an amount equal to the value of the option granted to Dr. Zapalac under
Section 2.1(b)(ii) of the Affiliation Agreement (the "Option"). The Option shall
be value at an amount equal to the difference, if any, between the Average
Market Value Price (as defined below in this Section 3) of OMEGA Stock and IPO
Price (as defined in Section 2.1(b)(i) of the Affiliation Agreement), multiplied
by the number of shares of Omega Common Stock granted in the Option. The Average
Market Value Price shall be determined by averaging the last sales (or closing)
price for Omega's Common Stock on Nasdaq (or a national securities exchange) for
each of the sixty (60) trading days immediately preceding the date the Call
Option Notice is delivered to the MSO (collectively, the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC, at its election shall pay cash,
or a combination of cash and a cancellation of the Option, such Option to be
valued as provided for in Section 3 hereof, for the repurchased assets, whether
the Put Price pursuant to exercise by the MSO
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of the Put Option or the Call Price pursuant to exercise by the New PC of the
Call Option, as the case may be. The New PC and Dr. Zapalac shall execute such
documents as may be required by the MSO to assume the liabilities set forth in
Section 2(c) or 3(c), as the case may be, and shall use their respective best
efforts to remove the MSO from any liability with respect to such repurchased
assets and with respect to any property leased or subleased by the MSO. From and
after any such Closing, each party shall provide to the other parties reasonable
access to books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations which may be required of it. In
addition, following any such Closing, the MSO or its designee shall have
reasonable access during normal business hours to the New PCs records, including
patient records regarding records of collections, expenses and disbursements as
kept by the MSO in performing its obligations under the Management Services
Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Successor Designation Option") to
designate a successor orthodontist or successor orthodontists, which person or
persons must be duly licensed orthodontists in the State or otherwise permitted
by law to be a shareholder in a professional corporation in the State, to
purchase (the "Designated Successor") all or any portion of the Capital Stock
then held by Dr. Zapalac:
(i) the death of Dr. Zapalac;
(ii) if Dr. Zapalac is determined to be permanently disabled so as to
be unable to render any professional services on behalf of the New PC, as
determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Zapalac voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Zapalac acts in a criminally or grossly negligent manner
with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Zapalac becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Zapalac is convicted of a felony;
(vii) if Dr. Zapalac loses his license or is otherwise determined to
be disqualified from rendering services as an orthodontist for the New PC
by the applicable dental or other
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comparable regulatory board of the State;
(viii) if Dr. Zapalac's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the professional corporation statute
of the Laws of the State;
(ix) if Dr. Zapalac voluntarily files a petition under any bankruptcy
or insolvency law or a petition for the appointment of a receiver, or makes
an assignment for the benefit of creditors;
(x) if Dr. Zapalac is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr.
Zapalac and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Zapalac is required to transfer any shares of Capital
Stock by reason of a judgment, court order or decree or by operation of
law;
(xii) if Dr. Zapalac retires within the meaning of Paragraph (c) of
this Section 5; or
(xiii) if Dr. Zapalac desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of thirty (30) days, (i) prevents Dr. Zapalac from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Zapalac's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Zapalac shall occur on the
date when Dr. Zapalac voluntarily withdraws from the practice of orthodontics at
whatever age or for whatever reason and notifies the New PC that he desires to
be regarded as "Retired" and fails to have first proposed and obtained the MSO's
approval of a qualified successor orthodontist reasonably acceptable to the MSO.
6. Successor Designation Option Exercise. Except as otherwise provided
herein, upon exercise of the Successor Designation Option, the Designated
Successor may purchase all or any part of the Capital Stock. The failure of the
MSO to exercise this Successor Designation Option as to all of the Capital Stock
at any one time shall not limit the MSO's right to exercise the Successor
Designation Option with respect to any remaining Capital Stock at any time
during the term of this Agreement. The Successor Designation Option shall also
be exercisable by the MSO as provided in Section 8 below.
7. Exercise Notice. Any exercise of the Successor Designation Option shall
be accompanied by a written notice (the "Successor Designation Exercise Notice")
to Dr. Zapalac (or
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his successor or representative), specifying the name, address and information
showing the qualifications and suitability of the Designated Successor to
conduct or perform professional services on behalf of the New PC and number of
shares of Capital Stock of Dr. Zapalac as to which the Successor Designation
Option is being exercised. Upon the MSO's exercise of the Successor Designation
Option in respect of any event described in Section 5(a)(iii) or (x) as to all
of the shares of Capital Stock of Dr. Zapalac, Dr. Zapalac shall execute a
Non-Competition Agreement in the form attached hereto as Exhibit C. The MSO may,
at any time, cancel any Successor Designation Exercise Notice sent by it
hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Zapalac desires to sell
any of the Capital Stock to another orthodontist (a "Purchaser"), he shall first
give notice to the MSO of his intent to sell such Capital Stock ("Notice of
Sale"), giving to the MSO such information as shall be reasonably requested by
it to ascertain the qualifications and suitability of the Purchaser to conduct
or to perform professional services on behalf of the New PC and the terms and
conditions of such proposed sale to the Purchaser. Upon receipt of such Notice,
the Successor Designation Option of the MSO shall become exercisable for a
period of three (3) months, provided however, that the exercise price and terms
of purchase of the Capital Stock shall be no less favorable to Dr. Zapalac than
those set forth in the Notice of Sale. In the event the Successor Designation
Option is not exercised during such three (3) month period, Dr. Zapalac may sell
the Capital Stock to the Purchaser, with the consent of the MSO, which consent
shall not be unreasonably withheld, upon the terms and conditions set forth in
the Notice of Sale, provided however, that such sale shall be conditioned: (i)
upon the Purchaser joining in this Agreement and entering into an employment
agreement with the New PC on such terms and conditions as may be approved by the
MSO, and (ii) upon Dr. Zapalac executing a Non-Competition Agreement in the form
attached hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so requires in this Agreement, the term "MSO"
shall be deemed to refer to an assignee holding an assignment of the Successor
Designation Option with respect to such Capital Stock, and the terms "party" and
"parties" shall be deemed to include that assignee.
10. Purchase Price of the Capital Stock. (a) The purchase price ("Purchase
Price") due and payable by the Designated Successor upon exercise of the
Successor Designation Option shall be an amount equal to the product of (a) the
aggregate net amount received by the New PC pursuant to Article 6 and Schedule 3
of the Management Services Agreement for the twelve (12) calendar months
immediately preceding the month in which the Successor Designation Exercise
Notice is delivered to Dr. Zapalac (or his successor or representative)
multiplied by (b) a fraction, the numerator of which is the number of shares of
the Capital Stock to be purchased and the denominator of which is the total
number of shares of the Capital Stock outstanding at the time of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
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Successor Designation Option shall be paid by the Designated Successor executing
a nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Zapalac. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate with monthly
compounding published by the Internal Revenue Service from time to time in
accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision of the Code, provided however, that the
Designated Successor shall be permitted to prepay such note at any time.
Principal shall be payable in five equal annual installments commencing six
months after the closing date.
(c) Purchase From Dr. Zapalac's Estate.
(i) Upon the death of Dr. Zapalac and receipt of notice of a Successor
Designation Exercise Notice, Dr. Zapalac's personal representative shall
apply for and obtain any necessary court approval or confirmation of the
sale of Dr. Zapalac's shares of Capital Stock pursuant to this Agreement.
The representative of the estate of Dr. Zapalac shall make complete
application for court approval on the date which is the later of forty-five
days after Dr. Zapalac's death or twenty days after such Designated
Successor is found. The representative of the estate and the Designated
Successor shall diligently pursue completion of such sale as soon after the
date of death as practicable.
(ii) The death of Dr. Zapalac's spouse, if any, shall not be
considered the death of Dr. Zapalac for purposes of this Agreement.
(iii) The estate of Dr. Zapalac shall bear, and hold the New PC
harmless from, all costs and expenses incurred as a result of securing any
court orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Zapalac to transfer to the Designated
Successor full legal and equitable title, free of all inheritance and other
transfer taxes, to the Capital Stock of Dr. Zapalac.
(d) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Successor Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Successor Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Zapalac hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Zapalac ("Insurance Policies"). The life insurance
policy may be in an aggregate face amount of up to three times Dr. Zapalac's
income, as shown on the W-2 Form prepared by the New PC for the most recent
calendar year. Dr. Zapalac agrees, at the election of the MSO, to take whatever
actions are necessary to facilitate the acquisition of any such Insurance Policy
by the MSO.
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(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Zapalac each represent and warrant
to the MSO and OMEGA that as of the day and year first above written and during
the term of this Agreement, Exhibit A is a true and complete listing of the
Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Zapalac shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Zapalac shall not permit the
New PC to, and the New PC shall not, during the term of this Agreement, issue
any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon the execution of this Agreement, Dr.
Zapalac shall execute and deliver to the MSO, a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Capital Stock
(the "Stock Power") held of record or beneficially owned by Dr. Zapalac. Upon
execution of this Agreement, Dr. Zapalac shall deliver to the MSO all
certificates heretofore issued representing all of the shares of Capital Stock
held of record or beneficially owned by Dr. Zapalac. Each such certificate shall
have affixed to the back of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to
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and restricted by a certain Stock Put/Call Option and Successor Designation
Agreement, dated, 1997, among the New PC, the holder hereof and the MSO and
OMEGA (as defined therein). The New PC will mail without charge to any
holder of these shares a copy of such agreement within five (5) days of
receipt by the New PC of a written request therefor."
Upon any exercise of the Successor Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to the certificates and tender the same to the transfer
agent for the New PC for reissuance in the name of the Designated Successor.
Upon any termination of this Agreement without exercise of the Successor
Designation Option, the MSO shall return all such Stock Powers to Dr. Zapalac.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Zapalac, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put Option, the Call Option or the Successor
Designation Option as to all of the Capital Stock, as the case may be (the
"Term").
17. General
(a) Compliance with Law. The New PC and Dr. Zapalac shall comply with all
applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Zapalac on the one hand and OMEGA and the MSO (or any assignee of the
MSO) on the other hand are acting in the capacity of the grantor and grantee of
an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by
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the New PC or Dr. Zapalac without the prior written consent of the MSO and
OMEGA. This Agreement binds the successors, heirs, and authorized assignees of
the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Zapalac: Jeff S. Zapalac, D.D.S.
8430 Spicewood Springs Road
Austin, Texas 78759
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Zapalac and the MSO and OMEGA each
shall bear their own expenses, including, without limitation, attorneys' and
accountants' fees, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby.
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(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 18, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary, nothing in
this Section 18 shall preclude any party from seeking a preliminary injunction
or other provisional relief, either prior to or during the proceeding provided
for in this section, if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.
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IN WITNESS WHEREOF, the New PC, Dr. Zapalac, MSO and OMEGA have executed
this Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
___________________, INC.,
a Texas corporation
By:
---------------------------------------
Jeff S. Zapalac, D.D.S., President
DR. ZAPALAC
---------------------------------------
Jeff S. Zapalac, D.D.S.
"MSO"
OMEGA ORTHODONTICS
OF AUSTIN, INC.
a Delaware corporation
By:
---------------------------------------
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:
---------------------------------------
Robert J. Schulhof, President and
Chief Executive Officer
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SPOUSAL JOINDER AND CONSENT
I am the spouse of Jeff S. Zapalac, D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this _________ day of _________________________ , 1997.
Signature:
Printed or Typed Name:
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EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Zapalac Attach]
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EXHIBIT B
STOCK
[Dr. Zapalac attach]
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EXHIBIT C
NON-COMPETITION AGREEMENT
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EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
either the Center for Public Resources, New York, New York ("CPR") Panels of
Neutrals, the American Arbitration Association ("AAA") or the Association of
Attorney Neutrals ("AAN"), with the assistance of such organization, unless the
parties agree otherwise in finding a mutually acceptable mediator.
5. Acquisition shall bear 50% and the New PC and Dr. Zapalac shall bear 50%
of the fees and costs of the mediator and any fees and costs of CPR, AAA or AAN.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR, AAA or AAN.
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B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
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possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration before AAA, AAN or CPR, to a qualified sole arbitrator in accordance
with the then current CPR Rules for Non-Administered Arbitration of Business
Disputes or comparable AAA or AAN rules. The sole arbitrator shall be agreed
upon by the parties within twenty (20) days after either party elects to submit
any issue to arbitration or, failing that, shall be selected by the organization
to whom the parties selected for arbitration. A qualified arbitrator is one who
is familiar with the principal subject matter of the issues to be arbitrated
such as by way of example, healthcare services industry matters, management
consulting services generally or business law/corporate matters generally.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances. If the
party initially raising the dispute to be resolved is New PC or Dr. Zapalac, the
arbitration shall be held in Boston, Massachusetts, and if the party initially
raising the dispute to be resolved is the MSO or OMEGA, the arbitration shall be
held in Austin, Texas.
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Exhibit 10.12
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 199___ by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of Nevada (the "State"); David T.
Grove, D.M.D., M.S. ("Dr. Grove") who is duly licensed to practice orthodontics
in the State; Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and
Omega Orthodontics of Elko, Inc., a Delaware corporation (the "MSO"), which is a
wholly-owned subsidiary of OMEGA, with reference to the following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, space,
equipment, furnishings and active administrative personnel necessary for the
operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 199__ by and among OMEGA, Dr. Grove, David
T. Grove, LLC, a Nevada limited company, and the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Grove affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-medical business affairs of
the New PC.
E. Dr. Grove owns all of the capital stock (the "Capital Stock") of the New
PC and desires to provide for successor ownership upon the occurrence of certain
events. When used in this Agreement, the term "Capital Stock" shall mean all of
Dr. Grove's right, title, interest and estate in and to all of the issued and
outstanding stock in the New PC, including any stock hereafter issued and any
rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Grove has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Grove certain rights, including but not limited to, the right to designate the
successor purchaser (the "Designated Successor") of all or any part of the
issued and outstanding Capital Stock upon the occurrence of
<PAGE>
certain events. In addition, under the Management Services Agreement, upon
termination thereof, each of the New PC and the MSO were granted certain rights
to be set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr. Grove,
the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Grove contemplated thereunder, and
any goodwill and other intangible assets set forth on the Balance Sheet,
reflecting amortization or depreciation of the restrictive covenants, and
any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Grove at least twenty (20) calendar days
prior to the date specified in such notice as the date for the closing of the
Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
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3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1 thereof, to:
(a) Sell to the New PC at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the Balance
Sheet to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, at book
value, the right to receive payments for breach of the restrictive
covenants provided for in Section 3.7 of the Management Services Agreement
and in the applicable Employment Agreement with Dr. Grove contemplated
thereunder, and any goodwill and other intangible assets set forth on the
Balance Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of the amounts called for under Clauses (a) and (b)
of this Section 3 (collectively, the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC shall pay cash for the
repurchased assets, whether the Put Price pursuant to exercise by the MSO of the
Put Option or the Call Price pursuant to exercise by the New PC of the Call
Option, as the case may be. The New PC and Dr. Grove shall execute such
documents as may be required by the MSO to assume the liabilities set forth in
Section 2(c) or 3(c), as the case may be, and shall use their respective best
efforts to remove the MSO from any liability with respect to such repurchased
assets and with respect to any property leased or subleased by the MSO. From and
after any such Closing, each party shall provide to the other parties reasonable
access to books and records then owned by it to permit such requesting
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<PAGE>
party to satisfy reporting and contractual obligations which may be required of
it. In addition, following any such Closing, the MSO or its designee shall have
reasonable access during normal business hours to the New PCs records, including
patient records regarding records of collections, expenses and disbursements as
kept by the MSO in performing its obligations under the Management Services
Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Successor Designation Option") to
designate a successor orthodontist or successor orthodontists, which person or
persons must be duly licensed orthodontists in the State or otherwise permitted
by law to be a shareholder in a professional corporation in the State, to
purchase (the "Designated Successor") all or any portion of the Capital Stock
then held by Dr. Grove:
(i) the death of Dr. Grove;
(ii) if Dr. Grove is determined to be permanently disabled so as to be
unable to render any professional services on behalf of the New PC, as
determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Grove voluntarily terminates his employment without first
proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Grove acts in a criminally or grossly negligent manner
with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Grove becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Grove is convicted of a felony;
(vii) if Dr. Grove loses his license or is otherwise determined to be
disqualified from rendering services as an orthodontist for the New PC by
the applicable dental or other comparable regulatory board of the State;
(viii) if Dr. Grove's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the professional corporation statute
of the Laws of the State;
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(ix) if Dr. Grove voluntarily files a petition under any bankruptcy or
insolvency law or a petition for the appointment of a receiver, or makes an
assignment for the benefit of creditors;
(x) if Dr. Grove is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr. Grove
and such involuntary petition, assignment or attachment is not discharged
within sixty (60) days after creation;
(xi) if Dr. Grove is required to transfer any shares of Capital Stock
by reason of a judgment, court order or decree or by operation of law;
(xii) if Dr. Grove retires within the meaning of Paragraph (c) of this
Section 5; or
(xiii) if Dr. Grove desires to sell any of his shares of Capital Stock
to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of thirty (30) days, (i) prevents Dr. Grove from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Grove's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Grove shall occur on the date
when Dr. Grove voluntarily withdraws from the practice of orthodontics at
whatever age or for whatever reason and notifies the New PC that he desires to
be regarded as "Retired" and fails to have first proposed and obtained the MSO's
approval of a qualified successor orthodontist reasonably acceptable to the MSO.
6. Stock Designation Option Exercise. Except as otherwise provided herein,
upon exercise of the Stock Designation Option, the Designated Successor may
purchase all or any part of the Capital Stock. The failure of the MSO to
exercise this Stock Designation Option as to all of the Capital Stock at any one
time shall not limit the MSO's right to exercise the Stock Designation Option
with respect to any remaining Capital Stock at any time during the term of this
Agreement. The Stock Designation Option shall also be exercisable by the MSO as
provided in Section 8 below.
7. Exercise Notice. Any exercise of the Stock Designation Option shall be
accompanied by a written notice (the "Stock Designation Exercise Notice") to Dr.
Grove (or his successor or representative), specifying the name, address and
information showing the qualifications and suitability of the Designated
Successor to conduct or perform professional services on behalf of the New PC
and number of shares of Capital Stock of Dr. Grove as to which the Stock
Designation Option is being exercised. Upon the MSO's exercise of the Stock
Designation Option in respect of any event described in Section 5(a)(iii) or (x)
as to all of the shares
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<PAGE>
of Capital Stock of Dr. Grove, Dr. Grove shall execute a Non-Competition
Agreement in the form attached hereto as Exhibit C. The MSO may, at any time,
cancel any Stock Designation Exercise Notice sent by it hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Grove desires to sell
any of the Capital Stock to another orthodontist (a "Purchaser"), he shall first
give notice to the MSO of his intent to sell such Capital Stock ("Notice of
Sale"), giving to the MSO such information as shall be reasonably requested by
it to ascertain the qualifications and suitability of the Purchaser to conduct
or to perform professional services on behalf of the New PC and the terms and
conditions of such proposed sale to the Purchaser. Upon receipt of such Notice,
the Stock Designation Option of the MSO shall become exercisable for a period of
three (3) months, provided however, that the exercise price and terms of
purchase of the Capital Stock shall be no less favorable to Dr. Grove than those
set forth in the Notice of Sale. In the event the Stock Designation Option is
not exercised during such three (3) month period, Dr. Grove may sell the Stock
to the Purchaser, with the consent of the MSO, which consent shall not be
unreasonably withheld, upon the terms and conditions set forth in the Notice of
Sale, provided however, that such sale shall be conditioned: (i) upon the
Purchaser joining in this Agreement and entering into an employment agreement
with the New PC on such terms and conditions as may be approved by the MSO, and
(ii) upon Dr. Grove executing a Non-Competition Agreement in the form attached
hereto as Exhibit C.
9. Assignment of the Stock Designation Option The Stock Designation Option
may be assigned by the MSO or any assignee of the MSO to OMEGA or to a duly
licensed orthodontist, by a written assignment, signed by both the MSO and the
assignee. When the context so requires in this Agreement, the term "MSO" shall
be deemed to refer to an assignee holding an assignment of the Stock Designation
Option with respect to such Capital Stock, and the terms "party" and "parties"
shall be deemed to include that assignee.
10. Purchase Price of the Capital Stock.
(a) The purchase price ("Purchase Price") due and payable by the Designated
Successor upon exercise of the Stock Designation Option shall be as follows:
(i) Upon the occurrence of any event described in Sections 5(i) and
(ii), an amount equal to the Appraised Value of the Capital Stock;
(ii) Upon the occurrence of any event described in Sections 5(a)(iii),
(iv), (v), (vi), (vii), (viii), (ix), (x), (xi) or (xii), an amount equal
to ___% of the Appraised Value of the Stock.
(b) Determination of Appraised Value of Stock.
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<PAGE>
(i) For purposes of this Agreement, the Appraised Value of a share of
Capital Stock of the New PC shall be the Net Value of the New PC divided by
the total number of outstanding shares of Capital Stock of the New PC on
the Valuation Date.
(ii) The Net Value of the New PC shall be determined by appraisal. The
MSO and Dr. Grove (or his successor or representative) shall each select an
independent appraiser, who is experienced in valuing businesses such as the
New PC. Each party shall bear the costs of their own appraisal. If the
difference between the appraised value set by the two appraisers is less
than or equal to ten percent of the greater appraised value, then the Net
Value of the New PC shall be the average of the two appraisals. If the
difference between the appraised value set by the two appraisers is greater
than ten percent, the appraisers shall select a third appraiser and the Net
Value of the New PC shall be the appraised value as set by the third
appraiser. The costs of the third appraisal shall be borne equally by the
buying and the selling party.
(iii) the "Valuation Date" shall be the last day of the month
preceding the date on which any Stock Designation Exercise Notice is given.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Stock Designation Option shall be paid by the Designated Successor executing a
nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Grove. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate with monthly
compounding published by the Internal Revenue Service from time to time in
accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision of the Code, provided however, that the
Designated Successor shall be permitted to prepay such note at any time.
Principal shall be payable in five equal annual installments commencing six
months after the closing date.
(c) Purchase From Dr. Grove's Estate.
(i) Upon the death of Dr. Grove and receipt of notice of a Stock
Designation Exercise Notice, Dr. Grove's personal representative shall
apply for and obtain any necessary court approval or confirmation of the
sale of Dr. Grove's shares of Capital Stock pursuant to this Agreement. The
representative of the estate of Dr. Grove and the Designated Successor
shall complete such sale as soon after the date of death as practicable,
but no later than 180 days after such event.
(ii) The death of Dr. Grove's spouse, if any, shall not be considered
the death of Dr. Grove for purposes of this Agreement.
(iii) The estate of Dr. Grove shall bear, and hold the New PC harmless
from, all costs and expenses incurred as a result of securing any court
orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Grove to transfer to the Designated
Successor full legal and equitable tax-free title to the Capital Stock of
Dr. Grove.
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<PAGE>
(b) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Stock Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Stock Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Grove hereby consents to the acquisition
and maintenance in force of a disability insurance policy and a life insurance
policy on Dr. Grove ("Insurance Policies"). The life insurance policy may be in
an aggregate face amount of up to three times Dr. Grove's income, as shown on
the W-2 Form prepared by the New PC for the most recent calendar year. Dr. Grove
agrees, at the election of the MSO, to take whatever actions are necessary to
facilitate the acquisition of any such Insurance Policy by the MSO.
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Grove each represent and warrant to
the MSO and OMEGA that as of the day and year first above written and during the
term of this Agreement, Exhibit A is a true and complete listing of the Capital
Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Grove shall not sell, assign, transfer,
pledge or otherwise dispose (including by gift or otherwise) of any of his
shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Grove shall not permit the New
PC to, and the
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New PC shall not, during the term of this Agreement, issue any stock, other
equity, or debt of the New PC; permit any change in the composition or
respective percentage ownership of the New PC; merge, consolidate or otherwise
reorganize with or into any other corporation, partnership, trade, business, or
the like; amend or otherwise modify its articles of incorporation or bylaws;
dissolve; or enter into any agreement with any person to do any of the foregoing
without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Dr. Grove
shall execute and deliver to the MSO, a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Stock (the
"Stock Power") held of record or beneficially owned by Dr. Grove. Upon execution
of this Agreement, Dr. Grove shall deliver to the MSO all certificates
heretofore issued representing all of the shares of Capital Stock held of record
or beneficially owned by Dr. Grove. Each such certificate shall have affixed to
the back of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement, dated ,
199___, among the New PC, the holder hereof and the MSO and OMEGA (as
defined therein). The New PC will mail without charge to any holder of
these shares a copy of such agreement within five (5) days of receipt by
the New PC of a written request therefor."
Upon any exercise of the Stock Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to the certificates and tender the same to the transfer
agent for the New PC for reissuance in the name of the Designated Successor.
Upon any termination of this Agreement without exercise of the Stock Designation
Option, the MSO shall return all such Stock Powers to Dr. Grove.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Grove, and the MSO and OMEGA shall not disclose the contents of this
Agreement or the negotiations leading to this Agreement to third parties without
the prior written consent of the other parties. The MSO shall ensure that all of
the assignees likewise comply with the obligations of confidentiality imposed by
this Section, except that the MSO and the assignees may disclose the contents of
such to the extent required by law or otherwise to their respective agents,
representatives, contractors, and employees to the extent necessary to exercise
their respective rights or perform their respective obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put
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Option, the Call Option or the Stock Designation Option as to all of the Capital
Stock, as the case may be (the "Term").
17. General
(a) Compliance with Law. The New PC and Dr. Grove shall comply with all
applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Grove on the one hand and OMEGA and the MSO (or any assignee of the MSO)
on the other hand are acting in the capacity of the grantor and grantee of an
option to purchase or to designate the purchase of shares of Capital Stock and
nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by the New PC or Dr. Grove without the prior written
consent of the MSO and OMEGA. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Grove: David T. Grove, D.M.D., M.S.
581 12th Street
Elko, Nevada 89801
If to MSO or OMEGA: Omega Orthodontics, Inc.
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3621 Silver Spur Lane
Acton, California 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Grove and the MSO and OMEGA each
shall bear their own expenses, including, without limitation, attorneys' and
accountants' fees, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
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18. Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 17, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 17 to the contrary:
(i) Nothing in this Section 17 shall preclude any party from seeking a
preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination of the Net Value of the New PC as set forth in
Section 10(b), and such determination shall not be subject to the
provisions of this Section 17. Disputes as to the proper interpretation of
the provisions of this Agreement which describe how those amounts are to be
calculated, however, shall be subject to the provisions of this Section 17.
18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
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IN WITNESS WHEREOF, the New PC, Dr. Grove, MSO and OMEGA have executed this
Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
_____________________________, INC.,
a Nevada corporation
By: _______________________________
________________, President
DR. GROVE
------------------------------------
David T. Grove, D.M.D., M.S.
"MSO"
OMEGA ORTHODONTICS OF ELKO, INC.
a Delaware corporation
By: -------------------------------
______________, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: -------------------------------
Robert J. Schulhof, President and
Chief Executive Officer
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SPOUSAL JOINDER AND CONSENT
I am the spouse of David T. Grove, D.M.D., M.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this _________ day of ______________________________ , 199___.
Signature:
Printed or Typed Name:
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<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Grove Attach]
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<PAGE>
EXHIBIT B
STOCK
[Dr. Grove attach]
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<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
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<PAGE>
EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
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<PAGE>
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
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<PAGE>
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration in Boston, Massachusetts before a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes. The sole arbitrator shall be agreed upon by the parties
within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
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Exhibit 10.13
--------------
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of Arizona (the "State"); Michael G.
Churosh, D.D.S. ("Dr. Churosh") who is duly licensed to practice orthodontics in
the State; Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and Omega
Orthodontics of Goodyear, Inc., a Delaware corporation (the "MSO"), which is a
wholly-owned subsidiary of OMEGA, with reference to the following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Churosh,
Michael G. Churosh, D.D.S., M.S., LTD., an Arizona professional corporation, and
the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Churosh affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Churosh owns all of the capital stock (the "Capital Stock") of the
New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Churosh's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Churosh has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Churosh certain rights, including but not limited to, the right to designate the
successor purchaser (the "Designated Successor") of all or any part of the
issued and outstanding Capital Stock upon the occurrence of certain events. In
addition, under the Management Services Agreement, upon termination thereof,
each of the New PC and the MSO were granted certain rights to be set forth in
this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Churosh, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Churosh contemplated thereunder,
and any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Churosh at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1 thereof, to:
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<PAGE>
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made
by the MSO pursuant to the performance of its obligations under the
Management Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the Balance Sheet to reflect
operations of the MSO in respect of the Orthodontic Offices, including
depreciation, amortization and other adjustments of such assets shown on
such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Dr.
Churosh contemplated thereunder, and any goodwill and other intangible
assets set forth on the Balance Sheet, reflecting amortization or
depreciation of the restrictive covenants, and any goodwill and other
intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Churosh under Section 2.1(b)(i) of the Affiliation Agreement,
plus (y) the value of that number of shares of Omega Common Stock issued to Dr.
Churosh under Section 2.1(b)(ii) of the Affiliation Agreement, such value to be
determined by multiplying such number of shares by the average of the last sales
(or closing) price for Omega's Common Stock on Nasdaq (or a national securities
exchange) for each of the sixty (60) trading days immediately preceding the date
the Call Option Notice is delivered to the MSO (collectively, the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC, at its election, shall pay cash,
or a combination of cash and return of the shares of Omega Common Stock received
by Dr. Churosh under Section 2.1(b)(ii) of the Affiliation Agreement, such
shares to be valued as provided for in Section 3 hereof, pursuant to exercise by
the New PC of the Call Option, as the case may be. The New PC and Dr. Churosh
shall execute such documents as may be required by the MSO to assume the
liabilities set forth in Section 2(c) or 3(c), as the case may be, and shall use
their respective best efforts to remove the MSO from any liability with respect
to such repurchased assets and with respect to any property leased or subleased
by the MSO.
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<PAGE>
From and after any such Closing, each party shall provide to the other parties
reasonable access to books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it. In addition, following any such Closing, the MSO or its designee
shall have reasonable access during normal business hours to the New PCs
records, including patient records regarding records of collections, expenses
and disbursements as kept by the MSO in performing its obligations under the
Management Services Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO shall have the option (the "Successor Designation Option") to
designate a successor orthodontist or successor orthodontists, which person or
persons must be duly licensed orthodontists in the State or otherwise permitted
by law to be a shareholder in a professional corporation in the State, to
purchase (the "Designated Successor") all or any portion of the Capital Stock
then held by Dr. Churosh:
(i) the death of Dr. Churosh;
(ii) if Dr. Churosh is determined to be permanently disabled so as to
be unable to render any professional services on behalf of the New PC, as
determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Churosh voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Churosh acts in a criminally or grossly negligent manner
with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Churosh becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Churosh is convicted of a felony;
(vii) if Dr. Churosh loses his license or is otherwise determined to
be disqualified from rendering services as an orthodontist for the New PC
by the applicable dental or other comparable regulatory board of the State;
(viii) if Dr. Churosh's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the professional
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<PAGE>
corporation statute of the Laws of the State;
(ix) if Dr. Churosh voluntarily files a petition under any bankruptcy
or insolvency law or a petition for the appointment of a receiver, or makes
an assignment for the benefit of creditors;
(x) if Dr. Churosh is subjected involuntarily to such a petition or
assignment, or any creditor or other persons obtains an attachment or other
legal or equitable interest in any shares of the Capital Stock of Dr.
Churosh and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Churosh is required to transfer any shares of Capital
Stock by reason of a judgment, court order or decree or by operation of
law;
(xii) if Dr. Churosh retires within the meaning of Paragraph (c) of
this Section 5; or
(xiii) if Dr. Churosh desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of thirty (30) days, (i) prevents Dr. Churosh from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Churosh's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Churosh shall occur on the
date when Dr. Churosh voluntarily withdraws from the practice of orthodontics at
whatever age or for whatever reason and notifies the New PC that he desires to
be regarded as "Retired" and fails to have first proposed and obtained the MSO's
approval of a qualified successor orthodontist reasonably acceptable to the MSO.
6. Successor Designation Option Exercise. Except as otherwise herein, upon
exercise of the Successor Designation Option, the Designated Successor may
purchase all or any part of the Capital Stock. The failure of the MSO to
exercise this Successor Designation Option as to all of the Capital Stock at any
one time shall not limit the MSO's right to exercise the Successor Designation
Option with respect to any remaining Capital Stock at any time during the term
of this Agreement. The Successor Designation Option shall also be exercisable by
the MSO as provided in Section 8 below.
7. Exercise Notice. Any exercise of the Successor Designation Option
shall be accompanied by a written notice (the "Successor Designation Exercise
Notice") to Dr. Churosh(or his successor or representative), specifying the
name, address and information showing the qualifications and suitability of the
Designated Successor to conduct or perform professional services on behalf of
the New PC and number of shares of Capital Stock of Dr. Churosh as to which the
Successor Designation Option is being exercised. Upon the MSO's exercise of the
Successor Designation Option in respect of
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<PAGE>
any event described in Section 5(a)(iii) or (x) as to all of the shares of
Capital Stock of Dr. Churosh, Dr. Churosh shall execute a Non-Competition
Agreement in the form attached hereto as Exhibit C. The MSO may, at any time,
cancel any Successor Designation Exercise Notice sent by it hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Churosh desires to sell
any of the Capital Stock to another orthodontist (a "Purchaser"), he shall first
give notice to the MSO of his intent to sell such Capital Stock ("Notice of
Sale"), giving to the MSO such information as shall be reasonably requested by
it to ascertain the qualifications and suitability of the Purchaser to conduct
or to perform professional services on behalf of the New PC and the terms and
conditions of such proposed sale to the Purchaser. Upon receipt of such Notice,
the Successor Designation Option of the MSO shall become exercisable for a
period of three (3) months, provided however, that the exercise price and terms
of purchase of the Capital Stock shall be no less favorable to Dr. Churosh than
those set forth in the Notice of Sale. In the event the Successor Designation
Option is not exercised during such three (3) month period, Dr. Churoshmay sell
the Capital Stock to the Purchaser, with the consent of the MSO, which consent
shall not be unreasonably withheld, upon the terms and conditions set forth in
the Notice of Sale, provided however, that such sale shall be conditioned: (i)
upon the Purchaser joining in this Agreement and entering into an employment
agreement with the New PC on such terms and conditions as may be approved by the
MSO, and (ii) upon Dr. Churosh executing a Non-Competition Agreement in the form
attached hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so requires in this Agreement, the term "MSO"
shall be deemed to refer to an assignee holding an assignment of the Successor
Designation Option with respect to such Capital Stock, and the terms "party" and
"parties" shall be deemed to include that assignee.
10. Purchase Price of the Capital Stock. (a) Purchase Price. The purchase
price ("Purchase Price") due and payable by the Designated Successor upon
exercise of the Successor Designation Option shall be an amount equal to the
product of (a) the aggregate net amount received by the New PC pursuant to
Article 6 and Schedule 3 of the Management Services Agreement for the twelve
(12) calendar months immediately preceding the month in which the Successor
Designation Exercise Notice is delivered to Dr. Churosh (or his successor or
representative) multiplied by (b) a fraction, the numerator of which is the
number of shares of the Capital Stock to be purchased and the denominator of
which is the total number of shares of the Capital Stock outstanding at the time
of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Successor Designation Option shall be paid by the Designated Successor executing
a nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Churosh. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate with monthly
compounding published by the Internal Revenue Service from time to time in
accordance with
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<PAGE>
Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code") or
any successor provision of the Code, provided however, that the Designated
Successor shall be permitted to prepay such note at any time. Principal shall be
payable in five equal annual installments commencing six months after the
closing date.
(c) Purchase From Dr. Churosh's Estate.
(i) Upon the death of Dr. Churosh and receipt of notice of a Stock
Designation Exercise Notice, Dr. Churosh's personal representative shall
apply for and obtain any necessary court approval or confirmation of the
sale of Dr. Churosh's shares of Capital Stock pursuant to this Agreement.
The representative of the estate of Dr. Churosh and the Designated
Successor shall complete such sale as soon after the date of death as
practicable, but no later than 180 days after such event.
(ii) The death of Dr. Churosh's spouse, if any, shall not be
considered the death of Dr. Churosh for purposes of this Agreement.
(iii) The estate of Dr. Churosh shall bear, and hold the New PC
harmless from, all costs and expenses incurred as a result of securing any
court orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Churosh to transfer to the Designated
Successor full legal and equitable tax-free title to the Capital Stock of
Dr. Churosh.
(b) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Stock Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Stock Designation Exercise Notice ("Closing"), unless
extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Churosh hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Churosh ("Insurance Policies"). The life insurance
policy may be in an aggregate face amount of up to three times Dr. Churosh's
income, as shown on the W-2 Form prepared by the New PC for the most recent
calendar year. Dr. Churosh agrees, at the election of the MSO, to take whatever
actions are necessary to facilitate the acquisition of any such Insurance Policy
by the MSO.
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
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<PAGE>
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
12. Representations. The New PC and Dr. Churosh each represent and warrant
to the MSO and OMEGA that as of the day and year first above written and during
the term of this Agreement, Exhibit A is a true and complete listing of the
Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Churosh shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Churosh shall not permit the
New PC to, and the New PC shall not, during the term of this Agreement, issue
any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Dr. Churosh
shall execute and deliver to the MSO, a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Stock (the
"Stock Power") held of record or beneficially owned by Dr. Churosh. Upon
execution of this Agreement, Dr. Churosh shall deliver to the MSO all
certificates heretofore issued representing all of the shares of Capital Stock
held of record or beneficially owned by Dr. Churosh. Each such certificate shall
have affixed to the back of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement, dated ,
1997, among the New PC, the holder hereof and the MSO and OMEGA (as defined
therein). The New PC will mail without charge to any holder of these shares
a copy of such agreement within five (5) days of receipt by the New PC of a
written request therefor."
Upon any exercise of the Stock Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to
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<PAGE>
the certificates and tender the same to the transfer agent for the New PC
for reissuance in the name of the Designated Successor. Upon any
termination of this Agreement without exercise of the Stock Designation
Option, the MSO shall return all such Stock Powers to Dr. Churosh.
15. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Churosh, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put Option, the Call Option or the Stock
Designation Option as to all of the Capital Stock, as the case may be (the
"Term").
17. General
(a) Compliance with Law. The New PC and Dr. Churosh shall comply with all
applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Churosh on the one hand and OMEGA and the MSO (or any assignee of the
MSO) on the other hand are acting in the capacity of the grantor and grantee of
an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by the New PC or Dr. Churosh without the prior written
consent of the MSO and OMEGA. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
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<PAGE>
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Churosh: Michael G. Churosh, D.D.S.
1105 North Litchfield Road
Goodyear, Arizona 85338
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Churosh and the MSO and OMEGA each
shall bear their own expenses, including, without limitation, attorneys' and
accountants' fees, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules
attached to this Agreement are incorporated herein by this reference and all
references herein to "Agreement" shall mean this Agreement together with all
such exhibits and schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
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<PAGE>
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 18, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary, nothing in
this Section 18 shall preclude any party from seeking a preliminary injunction
or other provisional relief, either prior to or during the proceeding provided
for in this section, if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.
18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to demand a jury trial. This waiver is knowingly, intentionally and
voluntarily made by the parties and each party acknowledges that no person
acting on behalf of the other party has made any representation of fact to
induce this waiver of trial by jury or in any way modified or nullified its
effect. The parties each further acknowledge that it has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of its own
free will, and that it has had the opportunity to discuss this waiver with
counsel. Each party further acknowledges that it has read and understands the
meaning and ramifications of this waiver provision.
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<PAGE>
IN WITNESS WHEREOF, the New PC, Dr. Churosh, MSO and OMEGA have executed
this Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"NEW PC"
___________________, INC.,
an Arizona corporation
By: ______________________________
________________, President
DR. CHUROSH
- ------------------------------
Michael G. Churosh, D.D.S.
- -
"MSO"
OMEGA ORTHODONTICS OF GOODYEAR, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
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<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Michael G. Churosh, D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this day of , 1997.
Signature:
Printed or Typed Name:
- -
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<PAGE>
EXHIBIT A
---------
ORTHODONTIC OFFICES
[Dr. Churosh Attach]
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<PAGE>
EXHIBIT B
---------
STOCK
[Dr. Churosh attach]
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<PAGE>
EXHIBIT C
---------
NON-COMPETITION AGREEMENT
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<PAGE>
EXHIBIT D
---------
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
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<PAGE>
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the concurrence of
the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or
expert in any pending or future investigation, action or proceeding
relating to the subject matter of the mediation (including any
investigation, action or proceeding which involves persons not party to
this mediation); and
(b) The mediator and any documents and information in the mediator's
possession
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<PAGE>
will not be subpoenaed in any such investigation, action or proceeding, and
all parties will oppose any effort to have the mediator and documents
subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall
submit the matter to binding arbitration in Boston, Massachusetts before a
qualified sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. If the party initially
raising the dispute to be resolved is New PC or Dr. Churosh, the
arbitration shall be held in Boston, Massachusetts, and if the party
initially raising the dispute to be resolved is the MSO or OMEGA, the
arbitration shall be held in Goodyear, Arizona. The sole arbitrator shall
be agreed upon by the parties within twenty (20) days after either party
elects to submit any issue to arbitration or, failing that, shall be
selected by CPR. A qualified arbitrator is one who is familiar with the
principal subject matter of the issues to be arbitrated such as by way of
example, healthcare services industry matters, management consulting
services generally or business law/corporate matters generally. Judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances.
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Exhibit 10.14
STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this ____ day of ________, 1997 by and
among _____________, Inc., a professional corporation (the "New PC")
incorporated under the laws of the State of California (the "State"); Clark E.
Schneekluth, D.D.S. ("Dr. Schneekluth") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Huntington Beach, Inc., a Delaware
corporation (the "MSO"), which is a wholly-owned subsidiary of OMEGA, with
reference to the following facts.
RECITALS
A. OMEGA is an orthodontic practice management company and has expertise in
managing orthodontic practices including practice management systems, office
space, equipment, furnishings and active administrative personnel necessary for
the operation of orthodontic practices and providing high quality healthcare
management services to orthodontic practices, directly or indirectly through
management service organizations such as the MSO.
B. OMEGA holds all of the capital stock of the MSO pursuant to that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of __________, 1997 by and among OMEGA, Dr. Schneekluth,
Clark E. Schneekluth, D.D.S., P.C., a California professional corporation, and
the MSO.
C. The New PC owns and operates an orthodontic practice with offices
located in the facility identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Schneekluth affiliated with the New PC.
D. The New PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the New PC.
E. Dr. Schneekluth owns all of the capital stock (the "Capital Stock") of
the New PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Dr. Schneekluth's right, title, interest and estate in and to all of the
issued and outstanding stock in the New PC, including any stock hereafter issued
and any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the Management Services Agreement, Dr.
Schneekluth has agreed to grant to the MSO, and the MSO desires to acquire from
Dr. Schneekluth certain rights, including but not limited to, the right to
designate the successor purchaser (the "Designated Successor") of all or any
part of the issued and outstanding Capital Stock upon the occurrence of certain
events. In addition, under the Management Services Agreement, upon termination
thereof, each of the New PC and the MSO were granted certain rights to be set
forth in
<PAGE>
this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the New PC, Dr.
Schneekluth, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to require
the New PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at book value all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other assets,
including inventory and supplies and intangibles, set forth on the balance
sheet as at the end of the month immediately preceding the date of such
termination or expiration prepared in accordance with GAAP (the "Balance
Sheet") to reflect operations of the MSO in respect of the Orthodontic
Offices, including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at book value,
the right to receive payments for breach of the restrictive covenants
provided for in Section 3.7 of the Management Services Agreement and in the
applicable Employment Agreement with Dr. Schneekluth contemplated
thereunder, and any goodwill and other intangible assets set forth on the
Balance Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases which are
obligations of the MSO and which relate solely to the performance of its
obligations under the Management Services Agreement or the properties
subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the New PC and Dr. Schneekluth at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price").
3. Call Option. The New PC shall have the option (the "Call Option") to
require the
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<PAGE>
MSO, upon termination of the Management Services Agreement by the
New PC under Section 10.1 thereof, to:
(a) Sell to the New PC all of the leasehold improvements, fixtures,
furniture, furnishings and equipment comprising or located at the
Orthodontic Offices, including all replacements and additions thereto made
by the MSO pursuant to the performance of its obligations under the
Management Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the Balance Sheet to reflect
operations of the MSO in respect of the Orthodontic Offices, including
depreciation, amortization and other adjustments of such assets shown on
such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of, the New PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Dr.
Schneekluth contemplated thereunder, and any goodwill and other intangible
assets set forth on the Balance Sheet, reflecting amortization or
depreciation of the restrictive covenants, and any goodwill and other
intangible assets; and
(c) Assign to the New PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and which
relate solely to the performance of its obligations under the Management
Services Agreement or the properties subleased in respect of the
Orthodontic Offices.
If the New PC desires to exercise its Call Option, the New PC shall give written
notice of such election to the MSO at least twenty (20) calendar days prior to
the date specified in such notice as the date for the closing of the Call
Option. Any exercise of the Call Option by the New PC shall be made by an
aggregate payment to the MSO of an amount equal to the sum of (x) the amount of
cash paid to Dr. Schneekluth under Section 2.1(b)(i) of the Affiliation
Agreement, plus (y) the original principal amount of the Purchase Note issued to
Dr. Schneekluth under Section 2.1(b)(ii) of the Affiliation Agreement, plus (z)
the value of that number of shares of Omega Common Stock issued to Dr.
Schneekluth under Section 2.1(b)(iii) of the Affiliation Agreement, such value
to be determined by multiplying such number of shares by the average of the last
sales (or closing) price for Omega's Common Stock on Nasdaq (or a national
securities exchange) for each of the sixty (60) trading days immediately
preceding the date the Call Option Notice is delivered to the MSO (collectively,
the "Call Price").
4. Closing and Delivery. The closing ("Closing") of the exercise by the MSO
of the Put Option under Section 2 or of the exercise by the New PC of the Call
Option under Section 3, as the case may be, shall be at the offices of Robinson
& Cole, One Boston Place, Boston, Massachusetts 02108 on the date specified for
such Closing in the written notice of election to exercise such Put Option or
Call Option, as the case may be, or on such other date as the parties may
mutually determine. At the Closing, the New PC, at its election, shall pay cash,
or a combination of cash and return of the shares of Omega Common Stock received
by Dr. Schneekluth under Section 2.1(b)(ii) of the Affiliation Agreement, such
shares to be valued as
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<PAGE>
provided for in Section 3 hereof, pursuant to exercise by the New PC of the Call
Option, as the case may be. The New PC and Dr. Schneekluth shall execute such
documents as may be required by the MSO to assume the liabilities set forth in
Section 2(c) or 3(c), as the case may be, and shall use their respective best
efforts to remove the MSO from any liability with respect to such repurchased
assets and with respect to any property leased or subleased by the MSO. From and
after any such Closing, each party shall provide to the other parties reasonable
access to books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations which may be required of it. In
addition, following any such Closing, the MSO or its designee shall have
reasonable access during normal business hours to the New PCs records, including
patient records regarding records of collections, expenses and disbursements as
kept by the MSO in performing its obligations under the Management Services
Agreement, and the MSO may copy any or all such records.
4. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO under
Section 10.2 thereof or upon expiration of the Term of the Management Services
Agreement or upon the happening of any of the following events (each of such
termination, expiration or event being hereinafter referred to as a "Transfer
Event"), the MSO have the option (the "Designated Successor Option") to
designate a Designated Successor to purchase all or any portion of the Capital
Stock then held by Dr. Schneekluth:
(i) the death of Dr. Schneekluth;
(ii) if Dr. Schneekluth is determined to be permanently disabled so as
to be unable to render any professional services on behalf of the New PC,
as determined in accordance with paragraph (b) of this Section 5 below;
(iii) if Dr. Schneekluth voluntarily terminates his employment without
first proposing and obtaining the MSO's approval of a proposed qualified
successor orthodontist reasonably acceptable to the MSO on behalf of the
New PC;
(iv) if Dr. Schneekluth acts in a criminally or grossly negligent
manner with respect to the performance of professional orthodontic services
rendered or to be rendered on behalf of the New PC;
(v) if Dr. Schneekluth becomes hospitalized for alcohol or drug abuse;
(vi) if Dr. Schneekluth is convicted of a felony, as defined under
California or federal law;
(vii) if Dr. Schneekluth loses his license or is otherwise determined
to be disqualified from rendering services as an orthodontist for the New
PC by the applicable
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<PAGE>
dental or other comparable regulatory board of the State;
(viii) if Dr. Schneekluth's shares of Capital Stock are or are to be
transferred voluntarily or by operation of law to any person who is a
"disqualified person," as defined in the professional corporation statute
of the Laws of the State;
(ix) if Dr. Schneekluth voluntarily files a petition under any
bankruptcy or insolvency law or a petition for the appointment of a
receiver, or makes an assignment for the benefit of creditors;
(x) if Dr. Schneekluth is subjected involuntarily to such a petition
or assignment, or any creditor or other persons obtains an attachment or
other legal or equitable interest in any shares of the Capital Stock of Dr.
Schneekluth and such involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Schneekluth is required to transfer any shares of Capital
Stock by reason of a judgment, court order or decree or by operation of
law;
(xii) if Dr. Schneekluth retires within the meaning of Paragraph (c)
of this Section 5; or
(xiii) if Dr. Schneekluth desires to sell any of his shares of Capital
Stock to another orthodontist as contemplated under Section 6 hereof.
(b) For purposes hereof, "permanent disability" means any illness, injury,
disease or condition, whether mental or physical, which, for a continuous period
of thirty (30) days, (i) prevents Dr. Schneekluth from performing his duties
competently and adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Schneekluth's ability to practice orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Schneekluth shall occur on the
date when Dr. Schneekluth voluntarily withdraws from the practice of
orthodontics at whatever age or for whatever reason and notifies the New PC that
he desires to be regarded as "Retired" and fails to have first proposed and
obtained the MSO's approval of a qualified successor orthodontist reasonably
acceptable to the MSO.
5. Successor Designation Option Exercise. Except as otherwise herein, upon
exercise of the Successor Designation Option, the Designated Successor may
purchase all or any part of the Capital Stock. The failure of the MSO to
exercise this Successor Designation Option as to all of the Capital Stock at any
one time shall not limit the MSO's right to exercise the Successor Designation
Option with respect to any remaining Capital Stock at any time during the term
of this Agreement. The Successor Designation Option shall also be exercisable by
the MSO as provided in Section 8 below.
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6. Exercise Notice. Any exercise of the Successor Designation Option shall
be accompanied by a written notice (the "Successor Designation Exercise Notice")
to Dr. Schneekluth(or his successor or representative), specifying the name,
address and information showing the qualifications and suitability of the
Designated Successor to conduct or perform professional services on behalf of
the New PC and number of shares of Capital Stock of Dr. Schneekluth as to which
the Successor Designation Option is being exercised. Upon the MSO's exercise of
the Successor Designation Option in respect of any event described in Section
5(a)(iii) or (x) as to all of the shares of Capital Stock of Dr. Schneekluth,
Dr. Schneekluth shall execute a Non-Competition Agreement in the form attached
hereto as Exhibit C. The MSO may, at any time, cancel any Successor Designation
Exercise Notice sent by it hereunder.
7. Right of First Refusal and Sale of Stock. If Dr. Schneekluth desires to
sell any of the Capital Stock to another orthodontist (a "Purchaser"), he shall
first give notice to the MSO of his intent to sell such Capital Stock ("Notice
of Sale"), giving to the MSO such information as shall be reasonably requested
by it to ascertain the qualifications and suitability of the Purchaser to
conduct or to perform professional services on behalf of the New PC and the
terms and conditions of such proposed sale to the Purchaser. Upon receipt of
such Notice, the Successor Designation Option of the MSO shall become
exercisable for a period of three (3) months, provided however, that the
exercise price and terms of purchase of the Capital Stock shall be no less
favorable to Dr. Schneekluth than those set forth in the Notice of Sale. In the
event the Successor Designation Option is not exercised during such three (3)
month period, Dr. Schneekluth may sell the Capital Stock to the Purchaser, with
the consent of the MSO, which consent shall not be unreasonably withheld, upon
the terms and conditions set forth in the Notice of Sale, provided however, that
such sale shall be conditioned: (i) upon the Purchaser joining in this Agreement
and entering into an employment agreement with the New PC on such terms and
conditions as may be approved by the MSO, and (ii) upon Dr. Schneekluth
executing a Non-Competition Agreement in the form attached hereto as Exhibit C.
8. Assignment of the Successor Designation Option The Successor Designation
Option may be assigned by the MSO or any assignee of the MSO to OMEGA or to a
duly licensed orthodontist, by a written assignment, signed by both the MSO and
the assignee. When the context so requires in this Agreement, the term "MSO"
shall be deemed to refer to an assignee holding an assignment of the Successor
Designation Option with respect to such Capital Stock, and the terms "party" and
"parties" shall be deemed to include that assignee.
9. Purchase Price of the Capital Stock.
(a) The purchase price ("Purchase Price") due and payable by the Designated
Successor upon exercise of the Successor Designation Option shall be an amount
equal to the product of (a) the aggregate net amount received by the New PC
pursuant to Article 6 and Schedule 3 of the Management Services Agreement for
the twelve (12) calendar months immediately preceding the month in which the
Successor Designation Exercise Notice is delivered to Dr. Schneekluth (or his
successor or representative) multiplied by (b) a fraction, the numerator of
which is the number of shares of the Capital Stock to be purchased and the
denominator of which is the
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<PAGE>
total number of shares of the Capital Stock outstanding at the time of such
purchase.
(b) Payment of Purchase Price. The Purchase Price upon exercise of the
Stock Designation Option shall be paid by the Designated Successor executing a
nonrecourse, negotiable promissory note, secured by the Capital Stock of Dr.
Schneekluth. The note shall be for a term of five years, with interest payable
quarterly in arrears at the mid-term Applicable Federal Rate with monthly
compounding published by the Internal Revenue Service from time to time in
accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision of the Code, provided however, that the
Designated Successor shall be permitted to prepay such note at any time.
Principal shall be payable in five equal annual installments commencing six
months after the closing date.
(c) Purchase From Dr. Schneekluth's Estate.
(i) Upon the death of Dr. Schneekluth and receipt of notice of a Stock
Designation Exercise Notice, Dr. Schneekluth's personal representative
shall apply for and obtain any necessary court approval or confirmation of
the sale of Dr. Schneekluth's shares of Capital Stock pursuant to this
Agreement. The representative of the estate of Dr. Schneekluth and the
Designated Successor shall complete such sale as soon after the date of
death as practicable, but no later than 180 days after such event.
(ii) The death of Dr. Schneekluth's spouse, if any, shall not be
considered the death of Dr. Schneekluth for purposes of this Agreement.
(iii) The estate of Dr. Schneekluth shall bear, and hold the New PC
harmless from, all costs and expenses incurred as a result of securing any
court orders, court decrees, court approvals or inheritance tax clearances
required to enable the estate of Dr. Schneekluth to transfer to the
Designated Successor full legal and equitable tax-free title to the Capital
Stock of Dr. Schneekluth.
(d) Other Purchases. Except for purchases of Capital Stock upon exercise of
the Stock Designation Option pursuant to Section 5(a)(i) hereof, all other
purchases of Capital Stock pursuant to such Option shall close thirty (30) days
after the date of any Stock Designation Exercise Notice ("Closing"), unless
extended by the parties.
10. Insurance.
(a) In order to insure the MSO's interest in the Management Services
Agreement and under this Agreement, Dr. Schneekluth hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy on Dr. Schneekluth ("Insurance Policies"). The life insurance
policy may be in an aggregate face amount of up to three times Dr. Schneekluth's
income, as shown on the W-2 Form prepared by the New PC for the most recent
calendar year. Dr. Schneekluth agrees, at the election of the MSO, to take
whatever actions are necessary to facilitate the acquisition of any such
Insurance Policy by the MSO.
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<PAGE>
(b) The Insurance Policies shall name the New PC as sole owner and
beneficiary of such policies. The New PC shall be entitled to the cash surrender
value of the policy.
(c) As long as the Insurance Policies provided for herein are in full force
and effect, the MSO shall pay all premiums falling due on all such policies
issued to it subject to this Agreement.
(d) No insurance company that has issued or shall issue an Insurance Policy
or Policies to the MSO as permitted under this Agreement shall be under any
obligation with respect to the performance of the terms and conditions of this
Agreement. Any such company shall be bound only by the terms of the Insurance
Policy or Policies which it has issued or shall hereafter issue and shall have
no liability except as set forth in its policies.
11. Representations. The New PC and Dr. Schneekluth each represent and
warrant to the MSO and OMEGA that as of the day and year first above written and
during the term of this Agreement, Exhibit A is a true and complete listing of
the Capital Stock, as revised from time to time pursuant to this Agreement.
12. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this Agreement or
with the express prior written consent of the MSO which may be granted or
withheld in its absolute discretion, Dr. Schneekluth shall not sell, assign,
transfer, pledge or otherwise dispose (including by gift or otherwise) of any of
his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and Consolidation.
Without the prior written consent of the MSO, Dr. Schneekluth shall not permit
the New PC to, and the New PC shall not, during the term of this Agreement,
issue any stock, other equity, or debt of the New PC; permit any change in the
composition or respective percentage ownership of the New PC; merge, consolidate
or otherwise reorganize with or into any other corporation, partnership, trade,
business, or the like; amend or otherwise modify its articles of incorporation
or bylaws; dissolve; or enter into any agreement with any person to do any of
the foregoing without the prior written consent of the MSO.
13. Delivery of Stock Power. Upon execution of this Agreement, Dr.
Schneekluth shall execute and deliver to the MSO, a sufficient number of
assignments separate from certificates, endorsed in blank to cover all of the
Stock (the "Stock Power") held of record or beneficially owned by Dr.
Schneekluth. Upon execution of this Agreement, Dr. Schneekluth shall deliver to
the MSO all certificates heretofore issued representing all of the shares of
Capital Stock held of record or beneficially owned by Dr. Schneekluth. Each such
certificate shall have affixed to the back of the certificate a legend
substantially as follows:
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<PAGE>
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement, dated
_________, 1997, among the New PC, the holder hereof and the MSO and OMEGA
(as defined therein). The New PC will mail without charge to any holder of
these shares a copy of such agreement within five (5) days of receipt by
the New PC of a written request therefor."
Upon any exercise of the Stock Designation Option by the MSO, the MSO
(and/or the Designated Successor) shall be authorized to complete the Stock
Powers, attach them to the certificates and tender the same to the transfer
agent for the New PC for reissuance in the name of the Designated Successor.
Upon any termination of this Agreement without exercise of the Stock Designation
Option, the MSO shall return all such Stock Powers to Dr. Schneekluth.
14. Confidentiality. The parties shall use all good faith efforts to keep
the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
New PC, Dr. Schneekluth, and the MSO and OMEGA shall not disclose the contents
of this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and year
first above written and shall terminate upon the termination of the Management
Services Agreement or the exercise (and consummation of the transaction provided
for upon such exercise) of the Put Option, the Call Option or the Stock
Designation Option as to all of the Capital Stock, as the case may be (the
"Term").
17. General
(a) Compliance with Law. The New PC and Dr. Schneekluth shall comply with
all applicable requirements of applicable state law and regulations, and other
licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their respective rights and
the performance of their respective obligations under this Agreement, the New PC
and Dr. Schneekluth on the one hand and OMEGA and the MSO (or any assignee of
the MSO) on the other hand are acting in the capacity of the grantor and grantee
of an option to purchase or to designate the purchase of shares of Capital Stock
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee, partnership, joint venture or a landlord/tenant relationship
between or among the parties.
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<PAGE>
(c) Assignment. Notwithstanding any other provision of this Agreement,
neither this Agreement nor the rights and duties of this Agreement may be
assigned or delegated by the New PC or Dr. Schneekluth without the prior written
consent of the MSO and OMEGA. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
(d) Counterparts. This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notices required or permitted to be given hereunder by any
party to another shall be in writing and shall be deemed delivered upon personal
delivery, twenty-four (24) hours following deposit with a courier for overnight
delivery or seventy two (72) hours following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may hereafter specify in writing:
If to the New PC
or Dr. Schneekluth: Clark E. Schneekluth, D.D.S.
5112 Warner Avenue, Suite 104
Huntington Beach, California 92649
If to MSO or OMEGA: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
(h) Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that any amendment shall be in writing and executed by the
parties.
(i) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, (i) the parties shall
amend this Agreement in order to carry out the intent and essential business
purposes of this Agreement as closely possible within the requirements of
applicable provisions of Law as determined by such a court, and (ii) the
remaining provisions will nevertheless continue in full force and effect.
(j) Fees and Expenses. The New PC, Dr. Schneekluth and the MSO and OMEGA
each shall bear their own expenses, including, without limitation, attorneys'
and accountants' fees, incurred in connection with the preparation of this
Agreement and the
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<PAGE>
transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules attached to this
Agreement are incorporated herein by this reference and all references herein to
"Agreement" shall mean this Agreement together with all such exhibits and
schedules.
(l) Time of Essence. Time is expressly made of the essence of this
Agreement in each and every provision hereof of which time of performance is a
factor.
(m) Attorneys' Fees. Should any of the parties hereto institute any action
or proceeding to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of arbitration), the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
(n) Further Assurances. The parties shall take such actions and execute and
deliver such further documentation as may reasonably be required in order to
give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
(o) Rights Cumulative. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may be entitled to under law. The exercise of one or more
rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 18, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 18 to the contrary, nothing in
this Section 18 shall preclude any party from seeking a preliminary injunction
or other provisional relief, either prior to or during the proceeding provided
for in this section, if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo.
18.2 Waiver of Jury. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which legal
action nevertheless occurs, each party hereby
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<PAGE>
irrevocably waives all rights it may have to demand a jury trial. This waiver is
knowingly, intentionally and voluntarily made by the parties and each party
acknowledges that no person acting on behalf of the other party has made any
representation of fact to induce this waiver of trial by jury or in any way
modified or nullified its effect. The parties each further acknowledge that it
has been represented (or has had the opportunity to be represented) in the
signing of this Agreement and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel. Each party further acknowledges that it has
read and understands the meaning and ramifications of this waiver provision.
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<PAGE>
IN WITNESS WHEREOF, the New PC, Dr. Schneekluth, MSO and OMEGA have
executed this Agreement as of the date first above written by their duly
authorized representatives as set forth below.
"NEW PC"
___________________, INC.,
a California corporation
By: _________________________________
________________, President
DR. SCHNEEKLUTH
_______________________________
Clark E. Schneekluth, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF HUNTINGTON BEACH, INC.
a Delaware corporation
By: _________________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: _________________________________
Robert J. Schulhof, President and
Chief Executive Officer
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<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Clark E. Schneekluth, D.D.S., the sole Stockholder of
______________, Inc. To the extent that I have any interest in any of the
Capital Stock (as that term is defined in the Stock Put/Call Option and
Successor Designation Agreement), I hereby join in such Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Put/Call Option and Successor Designation Agreement, understand
its terms and conditions, and to the extent that I have felt it necessary, I
have retained independent legal counsel to advise me concerning the legal effect
of this Stock Put/Call Option Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this ____________ day of ____________________________ , 1997.
Signature:________________________________
Printed or Typed Name:
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<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Schneekluth Attach]
-15-
<PAGE>
EXHIBIT B
STOCK
[Dr. Schneekluth attach]
-16-
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
-17-
<PAGE>
EXHIBIT D
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals,
with the assistance of CPR, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR.
B. Mediation procedures
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<PAGE>
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the parties
and when to hold separate meetings. There shall be no stenographic
record of any meeting. Formal rules of evidence will not apply.
(c) The mediator may request that there be no direct communication between
the parties or between their attorneys without the concurrence of the
mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
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<PAGE>
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
C. Binding Arbitration. If the parties do not resolve the dispute through
mediation within the period provided in Part A above, the parties shall submit
the matter to binding arbitration in Boston, Massachusetts before a qualified
sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration of Business Disputes. If the party initially
raising the dispute to be resolved is New PC or Dr. Schneekluth, the arbitration
shall be held in Boston, Massachusetts, and if the party initially raising the
dispute to be resolved is the MSO or OMEGA, the arbitration shall be held in
Huntington Beach, California. The sole arbitrator shall be agreed upon by the
parties within twenty (20) days after either party elects to submit any issue to
arbitration or, failing that, shall be selected by CPR. A qualified arbitrator
is one who is familiar with the principal subject matter of the issues to be
arbitrated such as by way of example, healthcare services industry matters,
management consulting services generally or business law/corporate matters
generally. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall not have the authority to
award multiple, punitive or consequential damages under any circumstances.
-20-
Exhibit 10.15
NON-NEGOTIABLE PROMISSORY NOTE
$218,042.00 Acton, California
_____________, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. Robert R. Schmisseur ("Dr. Schmisseur") at
1701 South Prospect, Champaign, Illinois, 61820 or other location specified by
Dr. Schmisseur in writing, Two Hundred Eighteen Thousand, Forty Two Dollars
($218,042.00), together with interest on any and all principal amounts, such
interest to be at the rate of 8.5% per annum and payable monthly on the first
day of each month, beginning within the first month following the date of this
Note.
1. Payments. Payments of principal under this Note shall be due and
payable in 48 equal monthly installments, beginning on the first day of the 13th
month following the date of this Note. In any event, the balance of principal
remaining unpaid shall be due and payable on the first day of the 60th month
following the date of this Note.
Payments of interest on the outstanding principal balance of this Note
shall be due and payable on the first day of each of the first 60 months
following the date of this Note. Interest shall accrue in arrears and shall be
computed on the basis of a 360-day year and a 30-day month.
Both principal and interest are payable in lawful money of the United
States of America.
2. Acceleration/Events of Default. At the option of Dr. Schmisseur, the
entire unpaid principal balance hereunder with interest then outstanding shall
become immediately due and payable upon the occurrence of any of the following
events of default (hereinafter "Events of Default") which are not cured in
accordance with the provisions of Section 3: (i) failure to pay principal when
due on this Note; (ii) failure to pay any interest on this Note 30 days after
payment is due; (iii) failure to perform any other covenant of Omega under this
Note, and such failure continues for 60 days after written notice by the holder;
and (iv) the making of an assignment for the benefit of creditors, trust
mortgage or composition with creditors or other arrangement of similar import by
or the commencement of any proceedings under any bankruptcy or insolvency law,
now or hereafter enacted, by
<PAGE>
or against, Omega or any endorser.
3. Omega's Right to Cure. Notwithstanding the foregoing, Omega shall at
minimum have the right: (i) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the Event of Default; and (ii) to cure
non-monetary defaults hereunder or under any such instrument, document or
undertaking within 30 calendar days after the Event of Default, in which event,
this Note and the loan evidenced hereby shall be reinstated. The time periods
provided herein for cure shall be concurrent with and not consecutive to any
other grace periods which may be provided in or with respect to any obligation
having the benefit of this provision.
4. Voluntary Prepayment. Omega may prepay this Note in whole or in part at
any time without penalty or premium, upon written notice to Dr. Schmisseur.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Schmisseur may incur in effecting collection of this
Note upon default or at maturity.
6. Delays. Dr. Schmisseur shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of his rights or remedies hereunder
unless such waiver be in writing and signed by Dr. Schmisseur. A delay, omission
or waiver on one occasion shall not be deemed a waiver or bar on any future
occasion of the same or any other right.
7. Certain Waivers. Omega hereby (i) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of non-monetary default;
(ii) waives all suretyship defenses; and (iii) assents to any extension or
postponement of the time of payment or any other indulgence or forbearance and
to the addition or release of any other party primarily or secondarily liable.
8. Remedies. Omega hereby acknowledges and agrees that no remedy of Dr.
Schmisseur under this Note is intended to be exclusive of any other remedy, and
each and every remedy given hereunder now or hereafter existing at law or in
equity by statute or other provision of law may be exercised in any order or
manner without waiving rights and may be exercised cumulatively.
9. Notices. Notices to Omega shall be deemed given when delivered in
<PAGE>
hand to Omega, or one (1) day after being sent by receipted commercial,
overnight courier or five (5) days after being mailed by certified mail, postage
prepaid, return receipt requested, to Omega at 3621 Silver Spur Lane, Acton,
California 93510 or other address of which Omega shall have notified Dr.
Schmisseur in writing.
10. Governing Law. This Note shall be deemed to be a California
instrument, and all rights and obligations hereunder shall be governed by the
laws of the State of California.
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<PAGE>
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By:_________________________
Robert J. Schulhof,
President
-4-
Exhibit 10.16
NON-NEGOTIABLE PROMISSORY NOTE
$106,557.00 Acton, California
_____________, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. Ted Saydyk ("Dr. Saydyk") at 1317 North
Academy Boulevard, Suite 203, Colorado Springs, Colorado 80909 or other location
specified by Dr. Saydyk in writing, One Hundred Six Thousand Five Hundred Fifty
Seven Dollars ($106,557.00) together with interest on any and all principal
amounts, such interest to be at the rate of 8.5% per annum and payable monthly
on the first day of each month, beginning within the first month following the
date of this Note.
1. Payments. Payments of principal under this Note shall be due and payable
in 48 equal monthly installments, beginning on the first day of the 13th month
following the date of this Note. In any event, the balance of principal
remaining unpaid shall be due and payable on the first day of the 60th month
following the date of this Note.
Payments of interest on the outstanding principal balance of this Note
shall be due and payable on the first day of each of the first 60 months
following the date of this Note. Interest shall accrue in arrears and shall be
computed on the basis of a 360-day year and a 30-day month.
Both principal and interest are payable in lawful money of the United
States of America.
2. Acceleration/Events of Default. At the option of Dr. Saydyk, the entire
unpaid principal balance hereunder with interest then outstanding shall become
immediately due and payable upon the occurrence of any of the following events
of default (hereinafter "Events of Default") which are not cured in accordance
with the provisions of Section 3: (i) failure to pay principal when due on this
Note; (ii) failure to pay any interest on this Note 30 days after payment is
due; (iii) failure to perform any other covenant of Omega under this Note, and
such failure continues for 60 days after written notice by the holder; and (iv)
the making of an assignment for the benefit of creditors, trust mortgage or
composition with creditors or other arrangement of similar import by or the
commencement of any proceedings under any bankruptcy or insolvency law, now or
hereafter enacted, by or against, Omega or any endorser.
3. Omega's Right to Cure. Notwithstanding the foregoing, Omega shall at
minimum have the right: (i) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the Event of Default; and (ii) to cure
non-monetary defaults hereunder or under any such instrument, document or
undertaking within 30 calendar days after the Event of Default, in which event,
this Note and the loan evidenced hereby shall be reinstated. The time periods
provided herein for cure shall be concurrent with and not
-1-
<PAGE>
consecutive to any other grace periods which may be provided in or with respect
to any obligation having the benefit of this provision.
4. Voluntary Prepayment. Omega may prepay this Note in whole or in part at
any time without penalty or premium, upon written notice to Dr. Saydyk.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Saydyk may incur in effecting collection of this Note
upon default or at maturity.
6. Delays. Dr. Saydyk shall not, by any act, delay, omission or otherwise,
be deemed to have waived any of his rights or remedies hereunder unless such
waiver be in writing and signed by Dr. Saydyk. A delay, omission or waiver on
one occasion shall not be deemed a waiver or bar on any future occasion of the
same or any other right.
7. Certain Waivers. Omega hereby (i) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of non-monetary default;
(ii) waives all suretyship defenses; and (iii) assents to any extension or
postponement of the time of payment or any other indulgence or forbearance and
to the addition or release of any other party primarily or secondarily liable.
8. Remedies. Omega hereby acknowledges and agrees that no remedy of Dr.
Saydyk under this Note is intended to be exclusive of any other remedy, and each
and every remedy given hereunder now or hereafter existing at law or in equity
by statute or other provision of law may be exercised in any order or manner
without waiving rights and may be exercised cumulatively.
9. Notices. Notices to Omega shall be deemed given when delivered in hand
to Omega, or one (1) day after being sent by receipted commercial, overnight
courier or five (5) days after being mailed by certified mail, postage prepaid,
return receipt requested, to Omega at 3621 Silver Spur Lane, Acton, California
93510 or other address of which Omega shall have notified Dr. Saydyk in writing.
10. Governing Law. This Note shall be deemed to be a California instrument,
and all rights and obligations hereunder shall be governed by the laws of the
State of California.
-2-
<PAGE>
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By:_________________________
Robert J. Schulhof,
President
-3-
Exhibit 10.17
NON-NEGOTIABLE PROMISSORY NOTE
$82,680.00 Acton, California
_____________, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. Scott E. Feldman ("Dr. Feldman") at 6325
Topanga Canyon Boulevard, No. 424, Woodland Hills, California 91367 or other
location specified by Dr. Feldman in writing, Eighty-Two Thousand Six Hundred
Eighty Dollars ($82,680.00) together with interest on any and all principal
amounts, such interest to be at the rate of 8.5% per annum and payable monthly
on the first day of each month, beginning within the first month following the
date of this Note.
1. Payments. Payments of principal under this Note shall be due and
payable in 48 equal monthly installments, beginning on the first day of the 13th
month following the date of this Note. In any event, the balance of principal
remaining unpaid shall be due and payable on the first day of the 60th month
following the date of this Note.
Payments of interest on the outstanding principal balance of this Note
shall be due and payable on the first day of each of the first 60 months
following the date of this Note. Interest shall accrue in arrears and shall be
computed on the basis of a 360-day year and a 30-day month.
Both principal and interest are payable in lawful money of the United
States of America.
2. Acceleration/Events of Default. At the option of Dr. Feldman, the
entire unpaid principal balance hereunder with interest then outstanding shall
become immediately due and payable upon the occurrence of any of the following
events of default (hereinafter "Events of Default") which are not cured in
accordance with the provisions of Section 3: (i) failure to pay principal when
due on this Note; (ii) failure to pay any interest on this Note 30 days after
payment is due; (iii) failure to perform any other covenant of Omega under this
Note, and such failure continues for 60 days after written notice by the holder;
and (iv) the making of an assignment for the benefit of creditors, trust
mortgage or composition with creditors or other arrangement of similar import by
or the commencement of any
<PAGE>
proceedings under any bankruptcy or insolvency law, now or hereafter enacted, by
or against, Omega or any endorser.
3. Omega's Right to Cure. Notwithstanding the foregoing, Omega shall at
minimum have the right: (i) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the Event of Default; and (ii) to cure
non-monetary defaults hereunder or under any such instrument, document or
undertaking within 30 calendar days after the Event of Default, in which event,
this Note and the loan evidenced hereby shall be reinstated. The time periods
provided herein for cure shall be concurrent with and not consecutive to any
other grace periods which may be provided in or with respect to any obligation
having the benefit of this provision.
4. Voluntary Prepayment. Omega may prepay this Note in whole or in part at
any time without penalty or premium, upon written notice to Dr. Feldman.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Feldman may incur in effecting collection of this
Note upon default or at maturity.
6. Delays. Dr. Feldman shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of his rights or remedies hereunder
unless such waiver be in writing and signed by Dr. Feldman. A delay, omission or
waiver on one occasion shall not be deemed a waiver or bar on any future
occasion of the same or any other right.
7. Certain Waivers. Omega hereby (i) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of non-monetary default;
(ii) waives all suretyship defenses; and (iii) assents to any extension or
postponement of the time of payment or any other indulgence or forbearance and
to the addition or release of any other party primarily or secondarily liable.
8. Remedies. Omega hereby acknowledges and agrees that no remedy of Dr.
Feldman under this Note is intended to be exclusive of any other remedy, and
each and every remedy given hereunder now or hereafter existing at law or in
equity by statute or other provision of law may be exercised in any order or
manner without waiving rights and may be exercised cumulatively.
-2-
<PAGE>
9. Notices. Notices to Omega shall be deemed given when delivered in hand
to Omega, or one (1) day after being sent by receipted commercial, overnight
courier or five (5) days after being mailed by certified mail, postage prepaid,
return receipt requested, to Omega at 3621 Silver Spur Lane, Acton, California
93510 or other address of which Omega shall have notified Dr. Feldman in
writing.
10. Governing Law. This Note shall be deemed to be a California
instrument, and all rights and obligations hereunder shall be governed by the
laws of the State of California.
-3-
<PAGE>
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By:_________________________
Robert J. Schulhof,
President
-4-
Exhibit 10.18
NON-NEGOTIABLE PROMISSORY NOTE
$333,567.00 Acton, California
_____________, 19___
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. David T. Grove ("Dr. Grove"), at 581 12th
Street, Elko, Nevada or other location specified by Dr. Grove in writing, Three
Hundred Thirty-Three Thousand Five Hundred Sixty-Seven Dollars ($333,567.00)
together with interest on any and all principal amounts, such interest to be at
the rate of 8.5% per annum and payable monthly on the first day of each month,
beginning within the first month following the date of this Note.
1. Payments. Payments of principal under this Note shall be due and
payable in 48 equal monthly installments, beginning on the first day of the 13th
month following the date of this Note. In any event, the balance of principal
remaining unpaid shall be due and payable on the first day of the 60th month
following the date of this Note.
Payments of interest on the outstanding principal balance of this Note
shall be due and payable on the first day of each of the first 60 months
following the date of this Note. Interest shall accrue in arrears and shall be
computed on the basis of a 360-day year and a 30-day month.
Both principal and interest are payable in lawful money of the United
States of America.
2. Acceleration/Events of Default. At the option of Dr. Grove, the entire
unpaid principal balance hereunder with interest then outstanding shall become
immediately due and payable upon the occurrence of any of the following events
of default (hereinafter "Events of Default") which are not cured in accordance
with the provisions of Section 3: (i) failure to pay principal when due on this
Note; (ii) failure to pay any interest on this Note 30 days after payment is
due; (iii) failure to perform any other covenant of Omega under this Note, and
such failure continues for 60 days after written notice by the holder; and (iv)
the making of an assignment for the benefit of creditors, trust mortgage or
composition with creditors or other arrangement of similar import by or the
commencement of any proceedings under any bankruptcy or insolvency law, now or
hereafter enacted, by or against, Omega or any endorser.
3. Omega's Right to Cure. Notwithstanding the foregoing, Omega shall at
minimum have the right: (i) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the Event of Default; and (ii) to cure
non-monetary defaults hereunder or under any such instrument, document or
undertaking within 30 calendar days after the Event of Default, in which event,
this Note and the loan evidenced hereby shall be reinstated. The time periods
provided herein for cure shall be concurrent with and not consecutive to any
other grace periods which may be provided in or with respect to any obligation
having the benefit of this provision.
4. Voluntary Prepayment. Omega may prepay this Note in whole or in part at
any time
<PAGE>
without penalty or premium, upon written notice to Dr. Grove.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Grove may incur in effecting collection of this Note
upon default or at maturity.
6. Delays. Dr. Grove shall not, by any act, delay, omission or otherwise,
be deemed to have waived any of his rights or remedies hereunder unless such
waiver be in writing and signed by Dr. Grove. A delay, omission or waiver on one
occasion shall not be deemed a waiver or bar on any future occasion of the same
or any other right.
7. Certain Waivers. Omega hereby (i) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of non-monetary default;
(ii) waives all suretyship defenses; and (iii) assents to any extension or
postponement of the time of payment or any other indulgence or forbearance and
to the addition or release of any other party primarily or secondarily liable.
8. Remedies. Omega hereby acknowledges and agrees that no remedy of Dr.
Grove under this Note is intended to be exclusive of any other remedy, and each
and every remedy given hereunder now or hereafter existing at law or in equity
by statute or other provision of law may be exercised in any order or manner
without waiving rights and may be exercised cumulatively.
9. Notices. Notices to Omega shall be deemed given when delivered in hand
to Omega, or one (1) day after being sent by receipted commercial, overnight
courier or five (5) days after being mailed by certified mail, postage prepaid,
return receipt requested, to Omega at 3621 Silver Spur Lane, Acton, California
93510 or other address of which Omega shall have notified Dr. Grove in writing.
10. Governing Law. This Note shall be deemed to be a California
instrument, and all rights and obligations hereunder shall be governed by the
laws of the State of California.
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By: _________________________
Robert J. Schulhof,
President
-2-
Exhibit 10.19
Non-negotiable Promissory Note
$53,588.00 Acton, California
_____________, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. Clark E. Schneekluth ("Dr. Schneekluth") at
5112 Warner Avenue, Suite 104, Huntington Beach, California 92649 or other
location specified by Dr. Schneekluth in writing, Fifty-Three Thousand, Five
Hundred Eighty-Eight Dollars ($53,588.00), together with interest on any and all
principal amounts, such interest to be at the rate of 8.5% per annum and payable
monthly on the first day of each month, beginning within the first month
following the date of this Note.
1. Payments. Payments of principal under this Note shall be due and payable
in 48 equal monthly installments, beginning on the first day of the 13th month
following the date of this Note. In any event, the balance of principal
remaining unpaid shall be due and payable on the first day of the 60th month
following the date of this Note.
Payments of interest on the outstanding principal balance of this Note
shall be due and payable on the first day of each of the first 60 months
following the date of this Note. Interest shall accrue in arrears and shall be
computed on the basis of a 360-day year and a 30-day month.
Both principal and interest are payable in lawful money of the United
States of America.
2. Acceleration/Events of Default. At the option of Dr. Schneekluth, the
entire unpaid principal balance hereunder with interest then outstanding shall
become immediately due and payable upon the occurrence of any of the following
events of default (hereinafter "Events of Default") which are not cured in
accordance with the provisions of Section 3: (i) failure to pay principal when
due on this Note; (ii) failure to pay any interest on this Note 30 days after
payment is due; (iii) failure to perform any other covenant of Omega under this
Note, and such failure continues for 60 days after written notice by the holder;
and (iv) the making of an assignment for the benefit of creditors, trust
mortgage or composition with creditors or other arrangement of similar import by
or the commencement of any proceedings under any bankruptcy or insolvency law,
now or hereafter enacted, by or against, Omega or any endorser.
3. Omega's Right to Cure. Notwithstanding the foregoing, Omega shall at
minimum have the right: (i) to cure monetary defaults hereunder or under any
instrument, document or undertaking given or entered into in connection herewith
within 15 calendar days after the Event of Default; and (ii) to cure
non-monetary defaults hereunder or under any such instrument, document or
undertaking within 30 calendar days after the Event of Default, in which event,
this Note and the loan evidenced hereby shall be reinstated. The time periods
provided herein for cure shall be concurrent with and not consecutive to any
other grace periods which may be provided in or with respect to any obligation
having the benefit of this provision.
<PAGE>
4. Voluntary Prepayment. Omega may prepay this Note in whole or in part at
any time without penalty or premium, upon written notice to Dr. Schneekluth.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Schneekluth may incur in effecting collection of this
Note upon default or at maturity.
6. Delays. Dr. Schneekluth shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of his rights or remedies hereunder
unless such waiver be in writing and signed by Dr. Schneekluth. A delay,
omission or waiver on one occasion shall not be deemed a waiver or bar on any
future occasion of the same or any other right.
7. Certain Waivers. Omega hereby (i) waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, except as
specifically provided herein with respect to notices of non-monetary default;
(ii) waives all suretyship defenses; and (iii) assents to any extension or
postponement of the time of payment or any other indulgence or forbearance and
to the addition or release of any other party primarily or secondarily liable.
8. Remedies. Omega hereby acknowledges and agrees that no remedy of Dr.
Schneekluth under this Note is intended to be exclusive of any other remedy, and
each and every remedy given hereunder now or hereafter existing at law or in
equity by statute or other provision of law may be exercised in any order or
manner without waiving rights and may be exercised cumulatively.
9. Notices. Notices to Omega shall be deemed given when delivered in hand
to Omega, or one (1) day after being sent by receipted commercial, overnight
courier or five (5) days after being mailed by certified mail, postage prepaid,
return receipt requested, to Omega at 3621 Silver Spur Lane, Acton, California
93510 or other address of which Omega shall have notified Dr. Schneekluth in
writing.
10. Governing Law. This Note shall be deemed to be a California instrument,
and all rights and obligations hereunder shall be governed by the laws of the
State of California.
-2-
<PAGE>
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By:_________________________
Robert J. Schulhof,
President
-3-
Exhibit 10.20
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT ("Assignment") is dated
effective as of August 31, 1996 (the "Effective Date) by and between The
Orthodontic Management Effectiveness Group of America, LLC ("Assignor") and
Omega Orthodontics, Inc. ("Assignee").
WITNESSETH THAT:
WHEREAS, Assignor is a party under those certain contracts
described on Schedule 1.4 attached hereto and incorporated herein by this
reference (the "Contracts");
WHEREAS, for good and valuable consideration and pursuant to a
certain Asset Purchase Agreement dated of even date herewith by and between
Assignor and Assignee (the "Asset Purchase Agreement") and a General Bill of
Sale and Assignment by Assignor in favor of Assignee, Assignor desires to assign
all of its rights and interests with respect to the Contracts to Assignee and
Assignee desires to accept such assignment and assume all rights and obligations
of Assignor under the Contracts.
NOW, THEREFORE, in consideration of the foregoing and the following
covenants and agreements, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of its right,
title, and interest in and under the Contracts to Assignee, its successors and
assigns.
2. Assumption. Assignee hereby assumes the performance of all the terms,
covenants, and conditions of the Contracts to be performed, from and after the
Effective Date, by Assignor as a party under the Contracts.
3. Representations. Assignor represents, warrants and covenants to Assignee
as follows (all of which representations, warranties and covenants shall survive
this Assignment):
a. The Assignor is not in default under the terms of any of the Contracts;
b. No other person or entity has any rights to or under the Contracts
(other than the named parties thereto); and
c. The Assignor shall do nothing to impair or defeat this Assignment.
4. Indemnification by Assignor. Assignor hereby agrees to indemnify and
hold Assignee harmless from and against any and all losses, claims, or damages,
including costs and reasonable attorney's fees, arising directly or indirectly,
out of (i) any default under any of the Contracts arising on or prior to the
date of this Assignment, and (ii) the breach of any obligation by Assignor
contained herein.
<PAGE>
5. Indemnification by Assignee. Assignee hereby agrees to indemnify and
hold Assignor harmless from and against any and all losses, claims, or damages,
including costs and reasonable attorney's fees, arising directly or indirectly,
out of (i) any default under any of the Contracts arising after the Effective
Date, and (ii) the breach of any obligation by Assignee contained herein.
6. Miscellaneous. This Assignment may be executed in one or more
counterparts and all such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Assignment as of the date first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
/s/ Diane Kessler By: /s/ R. J. Schulhof
________________________ _________________________
Name: R. J. Schulhof
Title: President
THE ORTHODONTIC MANAGEMENT
EFFECTIVENESS GROUP OF AMERICA,
LLC
/s/ Diane Kessler By: /s/ R. J. Schulhof
________________________ _________________________
Name: R. J. Schulhof
Title: Manager
-2-
<PAGE>
SCHEDULE 1.4 -- THE CONTRACTS
Agent Agreement: Glovsky/Mayflower
Ancillary Agreements:
David Grove
Robert Schmisseur
Ted Saydyk
Andrew Smick
Leroy Vego
Ray Fortson
Clark Schneekluth
Consulting Services Agreements
David Grove
Robert Schmisseur
Ted Saydyk
Andrew Smick
Ray Fortson
Donald Byk
Clark Cash
Clark Schneekluth
Agreement/Working Arrangements with Consultants
Dean Bellavia: Books at reduced rates plus $100 per month per practice
served; Scheduling at reduced rate -- $2,500 per
practice
Sonny Elliott: $2,500 per in Practice Seminar, $300 per month for
coaching
Bud Ham: $1,000 per practice survey
Maxine Logan: $500 per month plus materials for promotional programs
for practices
Facilities -- Agreements to use home offices as company facilities
-3-
Exhibit 10.21
OMEGA ORTHODONTICS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of January 1, 1997, between ROBERT J. SCHULHOF, of
Acton, California (the "Employee") and OMEGA ORTHODONTICS, INC., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Employee desires to be employed by the Company, and the
Company desires to employ the Employee, on the terms, covenants and conditions
hereinafter set forth in this Agreement.
NOW, THEREFORE, for the reasons set forth above, and in consideration of
the mutual promises and agreements hereinafter set forth, the Company and the
Employee agree as follows:
1. Employment.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby employs and engages the Employee to hold the title of President
and Chief Executive Officer and perform the duties of such positions as set
forth in the Company's Bylaws and as designated by the board of directors of the
Company (the "Board of Directors"). In such capacity, and subject to review by
the Board of Directors, the Employee shall also perform such duties and
responsibilities as may be assigned to him from time to time by the Board of
Directors. The Employee hereby accepts such employment and agrees to serve the
Company as an officer for the period of this Agreement.
2. Term of Employment.
The term of this Agreement shall be for a period of three (3) years
commencing January 1, 1997 and expiring December 31, 1999, unless terminated
prior to that date as provided in Section 5 of this Agreement. Commencing on
January 1, 2000 and on January 1 of each year thereafter, the term of this
Agreement shall be automatically extended for an additional year, unless the
Employee receives notice of termination as provided in Subsection 5.7 of this
Agreement prior to such extension.
3. Devotion to Duties.
The Employee agrees that during the period that he is employed hereunder he
shall devote substantially all his business time and attention to the business
and affairs of the Company and shall use his best efforts to promote the
interests of the Company.
4. Compensation of Employee.
<PAGE>
4.1. Base Salary. During the term of this Agreement, the Company shall pay
to the Employee as compensation for the services to be performed by the Employee
a base salary of One Hundred Twenty Thousand Dollars ($120,000.00) per year (the
"Base Salary"). The Base Salary shall be payable in installments in accordance
with the Company's normal payroll practice. Commencing on January 1, 1998 and on
January 1 of each year thereafter, or as soon as practicable thereafter, the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
or the Board of Directors if the Compensation Committee is not then appointed,
shall review the Base Salary, and shall authorize, in its discretion, an
appropriate increase in the Base Salary.
4.2. Bonus. In addition to the compensation set forth elsewhere in this
Section 4, for each year or portion thereof during the term of this Agreement
and any extensions thereof, the Employee shall be eligible to receive a bonus in
an amount to be determined by the Compensation Committee, or the Board of
Directors if the Compensation Committee is not then appointed, in its
discretion, based upon its evaluation of the Employee's performance during such
year or portion thereof.
4.3. Benefits. The Employee shall be entitled to participate, during the
term he is employed hereunder, in all regular employee benefit and deferred
compensation plans established by the Company, including, without limitation,
any medical plans, life insurance, and personal catastrophe and disability
insurance. The Employee shall be entitled during the period that he is employed
to such paid vacation as is provided in the policy adopted by the Board of
Directors.
4.4. Office and Secretary.The Employee shall have a private office,
secretarial assistance and such other facilities and services as are suitable to
his position and appropriate for the performance of his duties.
4.5 Automobile. The Employee shall be provided with an automobile suitable
to his position and appropriate for the performance of his duties, or, at the
election of the Employee, the Employee shall receive a monthly automobile
allowance of Seven Hundred Dollars ($700.00).
4.6. Reimbursement of Expenses. The Company shall provide for the payment
or reimbursement of all reasonable and necessary expenses incurred by the
Employee in connection with the performance of his duties under this Agreement
in accordance with the Company's expense reimbursement policy, as such may
change from time to time.
5. Termination of Employment.
5.1. Termination For Cause. "Termination For Cause," as hereinafter
defined, may be effected by the Company at any time during the term of this
Agreement by written notification to the Employee pursuant to Subsection 5.7 of
this Agreement. Upon Termination For Cause, the Employee shall immediately be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the
2
<PAGE>
Employee in connection with his duties hereunder, all to the date of
termination, but the Employee shall not be paid any other compensation or
reimbursement of any kind, including without limitation, severance compensation.
"Termination For Cause" shall mean termination by the Company of the
Employee's employment by the Company by reason of the Employee's:
(i) Commission of a crime of moral turpitude or a violation of law which
results in criminal charges, fines or penalties or an order which
prevents the Employee from performing his duties hereunder;
(ii) Deliberate dishonesty towards, fraud upon, or deliberate injury or
attempted injury to the Company or any subsidiary or affiliate
thereof, or
(iii)Willful failure to perform material duties and responsibilities of
the Employee hereunder or a material breach of this Agreement by the
Employee, which failure or breach continues for more than thirty (30)
days after written notice is given to the Employee pursuant to a
two-thirds vote of all of the members of the Board of Directors of the
Company, such notice to set forth in reasonable detail the nature of
such failure or breach.
5.2. Termination Other Than For Cause. Notwithstanding any other provisions
of this Agreement, the Company or the Employee may effect a "Termination Other
Than For Cause," as hereinafter defined, at any time upon giving written notice
to the other party of such termination pursuant to Subsection 5.7 of this
Agreement. Upon any Termination Other Than For Cause, the Employee shall
immediately be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Employee is a participant
to the full extent of the Employee's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Employee in connection
with his duties hereunder, all to the date of termination, and all severance
compensation provided in Subsection 6.2, but no other compensation or
reimbursement of any kind.
"Termination Other Than For Cause" shall mean:
(a) termination by the Company of the employment of the Employee with the
Company for any reason other than a termination under Section 5.1, 5.3 or 5.4
hereof;
(b) termination by the Employee of the Employee's employment with the
Company for Good Reason. Good Reason shall mean the occurrence of any of the
following events:
(i) a substantial adverse change, not consented to by the
Employee, in the nature or scope of the Employee's responsibilities,
authorities, powers, functions or duties from the responsibilities,
authorities, powers, functions or duties exercised by the Employee
immediately prior to the Change in Control; or
3
<PAGE>
(ii) a reduction in the Employee's annual base salary as in
effect on the date hereof or as the same may be increased from time to
time; or
(iii) the relocation of the Company's offices at which the
Employee is principally employed immediately prior to the date of a
Change in Control to a location more than twenty-five (25) miles from
such offices, provided that such relocation results in an addition of
more than ten (10) miles to the current commute of the Employee
immediately prior to the date of the Change in Control, or the
requirement by the Company for the Employee to be based anywhere other
than the Company's offices at such new location, except for required
travel on the Company's business to an extent substantially consistent
with the Employee's business travel obligations immediately prior to
the Change in Control; or
(iv) the failure by the Company to pay to the Employee any
portion of his compensation or to pay to the Employee any portion of
an installment of deferred compensation under any deferred
compensation program of the Company within fifteen (15) days of the
date such compensation is due without prior written consent of the
Employee; or
(v) the failure by the Company to comply with any term or
provision under this Agreement; or
(vi) the failure by the Company to obtain an effective agreement
from any successor to assume and agree to perform this Agreement.
5.3. Termination by Reason of Disability. If, during the term of this
Agreement, the Employee, in the reasonable judgment of the Board of Directors,
has failed to perform his duties under this Agreement on account of illness or
physical or mental incapacity, and such illness or incapacity continues for a
period of more than twelve (12) consecutive months, the Company shall have the
right to terminate the Employee's employment hereunder by written notification
to the Employee pursuant to Subsection 5.7 of this Agreement and payment to the
Employee of all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Employee in connection with his
duties hereunder, all to the date of termination, with the exception of medical
and dental benefits which shall continue through the expiration of this
Agreement, but the Employee shall not be paid any other compensation or
reimbursement of any kind, including without limitation, severance compensation.
5.4. Death. In the event of the Employee's death during the term of this
Agreement, the Employee's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs and the Company shall
pay to his estate or such beneficiaries as the Employee may from time to time
designate all accrued salary, bonus
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compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Company in which
the Employee is a participant to the full extent of the Employee's rights under
such plans, accrued vacation pay and any appropriate business expenses incurred
by the Employee in connection with his duties hereunder, and to the date of
termination, but the Employee's estate shall not be paid any other compensation
or reimbursement of any kind, including without limitation, severance
compensation.
5.5. Voluntary Termination. In the event of a "Voluntary Termination," as
hereinafter defined, the Company shall immediately pay all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Company in which
the Employee is a participant to the full extent of the Employee's rights under
such plans, accrued vacation pay and any appropriate business expenses incurred
by the Employee in connection with his duties hereunder, all to the date of
termination, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation.
"Voluntary Termination" shall mean termination by the Employee of the
Employee's employment by the Company other than (i) for Good Reason as described
in Section 5.2, (ii) termination by reason of the Employee's disability as
described in Subsection 5.3, and (iii) termination by reason of the Employee's
death as described in Subsection 5.4.
5.6. Termination Upon a Change in Control. In the event of a "Termination
Upon a Change in Control," as hereinafter defined, the Employee shall
immediately be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Employee is a participant
to the full extent of the Employee's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Employee in connection
with his duties hereunder, all to the date of termination, and all severance
compensation provided in Subsection 6.1, but no other compensation or
reimbursement of any kind.
"Termination Upon a Change in Control" shall mean a Termination Other than
For Cause occurring within twenty-four (24) months after a "Change in Control,"
as hereinafter defined.
"Change in Control" shall mean (i) the date on which the Company first
determines that any person and all other persons which constitute a group,
within the meaning of Section 13(d)(3) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), have acquired direct or indirect
beneficial ownership, with the meaning of Rule 13d-3 under the Exchange Act, of
twenty percent (20%) or more of the Company's outstanding securities, unless a
majority of the "Continuing Directors," as hereinafter defined, approves the
acquisition not later than ten (10) business days after the Company makes that
determination, or (ii) the first day on which a majority of the members of the
Board of Directors are not Continuing Directors. Notwithstanding the foregoing,
issuances of the Company's securities in connection with the
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Company's initial public offering, expected to be completed during 1997, shall
not constitute or be deemed to constitute a "Change in Control."
"Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors who (i) was a member of the Board of Directors
on December 31, 1996, (ii) has been a member of the Board of Directors for the
two (2) years immediately preceding such date of determination, or (iii) was
nominated for election or elected to the Board of Directors with the affirmative
vote of the greater of (A) a majority of the Continuing Directors who were
members of the Board of Directors at the time of such nomination or election or
(B) at lease three (3) Continuing Directors.
5.7. Notice of Termination. The Company may effect a termination of this
Agreement pursuant to the provisions of this Section 5 upon giving ninety (90)
days' written notice to the Employee of such termination. The Employee may
effect a termination of this Agreement pursuant to the provisions of this
Section 5 upon giving ninety (90) days' written notice to the Company of such
termination.
5.8. Limitation on Termination Benefits. No payments by the Company to or
for the benefit of the Employee under this Agreement or any other agreement or
plan pursuant to which he is entitled to receive payments or benefit shall be
non-deductible to the Company by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended, (the "Code") or any successor
provision relating to parachute payments. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G, any such payments exceed the amount which
can be deducted by the Company, such payments shall be reduced to the maximum
amount which can be deducted by the Company. To the extent that payments
exceeding such maximum deductible amount have been made to or for the benefit of
the Employee, such excess payments shall be refunded to the Company with
interest thereon at the applicable Federal Rate determined under Section 1274(d)
of the Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be non-deductible to the Company by reason of
the operation of said Section 280G. To the extent that there is more than one
method of reducing the payments to bring them within the limitations of said
Section 280G, the Employee shall determine which method shall be followed,
provided that if the Employee fails to make such determination within forty-five
(45) days after the Company has sent him written notice of the need for such
reduction, the Company may determine the method for such reduction in its sole
discretion.
5.9 Determination of Termination Benefits. If any dispute between the
Company and the Employee as to any of the amounts to be determined under this
Section 5, or the method of calculating such amounts, cannot be resolved by the
Company and the Employee, either party after giving three (3) days written
notice to the other, may refer the dispute to a partner in the Boston office of
a firm of independent certified public accountants selected jointly by the
Company and the Employee. The determination of such partner as to the amount to
be determined under this Section 5 and the method of calculating such amounts
shall be final and binding on both the Company and the Employee. The Company
shall bear the costs of any such determination.
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6. Severance Compensation.
6.1. Termination Upon Change in Control or Termination Other Than For
Cause. In the event the Employee's employment is terminated in a Termination
Upon a Change in Control or a Termination Other Than For Cause, the Employee
shall be paid as severance compensation the Base Salary (at the rate payable at
the time of such termination) for the longer of (a) twelve (12) months or (b)
the remaining term of this Agreement, on the dates specified in Subsection 4.1.
Notwithstanding any provision in this Subsection 6.1 to the contrary, the
Employee may, in the Employee's sole discretion, by delivery of a notice to the
Company within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Company a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to the Employee pursuant to this Subsection 6.1. Such
present value shall be determined as of the date of delivery of the notice of
election by the Employee and shall be based on a discount rate equal to the
interest rate on 90-day United States Treasury bills, as reported in the Wall
Street Journal, or similar publication, on the date of delivery of the election
notice. If the Employee elects to receive a lump sum severance payment, the
Company shall make such payment to the Employee within ten (10) days following
the date on which the Employee notifies the Company of the Employee's election.
In addition to the severance payment payable under this Subsection 6.1, the
Employee shall be entitled to an accelerated vesting of any awards granted to
the Employee under the Company's Incentive Stock Plan.
6.2. Termination Upon Any Other Event. In the event of a Voluntary
Termination, Termination For Cause, termination by reason of the Employee's
disability pursuant to Subsection 5.5 or termination by reason of the Employee's
death pursuant to Subsection 5.6, the Employee or his estate shall not be paid
any severance compensation.
7. Obligations Contingent on Performance.
The obligations of the Company under this Agreement, including its
obligation to pay the compensation provided for herein, shall be contingent upon
the Employee's performance of his obligations under this Agreement.
8. Confidentiality.
The Employee agrees to hold in strict confidence all information concerning
any matters affecting or relating to the business of the Company, including
without limiting the generality of the foregoing its manner of operation, plans,
protocols, processes, computer programs, tenant lists, client lists, marketing
information and analysis, or other data, without regard to whether all of the
foregoing matters will be deemed confidential or material. The Employee agrees
that he will not, directly or indirectly, use any such information for the
benefit of others than the
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Company or disclose or communicate any of such information in any manner
whatsoever other than to the directors, officers, employees, agents and
representatives of the Company who need to know such information, who shall be
informed by the Employee of the confidential nature of such information and
directed by the Employee to treat such information confidentially. Upon the
Company's request, the Employee shall return all information furnished to him
related to the business of the Company.
The above limitations on use and disclosure shall not apply to information
which the Employee can demonstrate: (a) was known to the Employee before joining
the Company and was not contributed to the Company by the Employee; (b) is
learned by the Employee from a third party entitled to disclose it; or (c)
becomes known publicly other than through the Employee. The parties hereto
stipulate that all such information is material and confidential and gravely
affects the effective and successful conduct of the business of the Company and
the Company's good will, and that any breach of the terms of this Section 8
shall be a material breach of this Agreement. The terms of this Section 8 shall
remain in effect during the term of this Agreement and for a period of two (2)
years thereafter.
9. Use of Proprietary Information.
The Employee recognizes that the Company possesses a proprietary interest
in all of the information described in Section 8 and has the exclusive right and
privilege to use, protect by copyright, patent or trademark, manufacture or
otherwise exploit the processes, ideas and concepts described therein to the
exclusion of the Employee, except as otherwise agreed between the Company and
the Employee in writing. The Employee expressly agrees that any products,
inventions, discoveries or improvements made by the Employee, his agents or
affiliates, during the term of this Agreement, based on or arising out of the
information described in Section 8 shall be the property of and inure to the
exclusive benefit of the Company. The Employee further agrees that any and all
products, inventions, discoveries or improvements developed by the Employee
(whether or not able to be protected by copyright, patent or trademark) during
the course of his employment, or involving the use of the Company's time,
materials or other resources, shall be promptly disclosed to the Company and
shall become the exclusive property of the Company.
10. Non-Competition Agreement.
10.1. Non-Competition. The Employee agrees that, during the term of this
Agreement and for a period of one (1) year thereafter, he shall not, without the
prior written consent of the Company, directly or indirectly, own, manage,
operate, control, be connected with as an officer, employee, partner, consultant
or otherwise, or otherwise engage or participate in, except as an employee of
the Company, or any corporation directly or indirectly controlled by it, any
corporation or other business entity engaged in providing management services to
the orthodontic industry; provided, however, that the Employee may own and
operate his own consulting business that provides management and other services
to the orthodontic industry and provided further that, in the event that the
Employee is receiving severance compensation under Section 6.1 of this
Agreement, his obligation not to compete with the Company under this Section
10.1 shall cease when such payments cease (or would have ceased absent a request
by the
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Employee for a lump sum payment). Notwithstanding the foregoing, the ownership
by the Employee of less than two percent (2%) of any class of the outstanding
capital stock of any corporation conducting a business competitive with the
Company which is regularly traded on a national securities exchange or an
over-the-counter market shall not be a violation of the foregoing covenant.
The Employee hereby acknowledges and agrees that the provisions set forth
in this Subsection 10.1 constitute a reasonable restriction on his ability to
compete with the Company.
10.2. Non-Solicitation. During the term of this Agreement and for a period
of one (1) year thereafter, the Employee shall not contact or solicit, directly
or indirectly, any customer, client, affiliate orthodontist or orthodontic
entity, tenant or account whose identity the Employee obtained through
association with the Company, regardless of the geographical location of such
customer, client, affiliate orthodontist or orthodontic entity, tenant or
account, nor shall the Employee, directly or indirectly, entice or induce, or
attempt to entice or induce, any Employee of the Company to leave such employ,
nor shall the Employee employ any such person in any business similar to or in
competition with that of the Company during the term of this Agreement and for a
period of one (1) year thereafter. The Employee hereby acknowledges and agrees
that the provisions set forth in this Subsection 10.2 constitute a reasonable
restriction on his ability to compete with the Company.
10.3. Savings Provision. The parties hereto agree that, in the event a
court of competent jurisdiction shall determine that the geographical or
durational elements of this covenant are unenforceable, such determination shall
not render the entire covenant unenforceable. Rather, the excessive aspects of
the covenant shall be reduced to the threshold which is enforceable, and the
remaining aspects shall not be affected thereby.
10.4. Equitable Relief. The Employee acknowledges that the extent of
damages to the Company from a breach of Sections 8, 9 and 10 of this Agreement
would not be readily quantifiable or ascertainable, that monetary damages would
be inadequate to make the Company whole in case of such a breach, and that there
is not and would not be an adequate remedy at law for such a breach. Therefore,
the Employee specifically agrees that the Company is entitled to injunctive or
other equitable relief from a breach of Sections 8, 9 and 10 of this Agreement,
and hereby waives and covenants not to assert against a prayer for such relief
that there exists an adequate remedy at law, in monetary damages or otherwise.
11. Entire Agreement.
This Agreement contains the complete agreement concerning the employment
arrangement between the parties and shall, as of the effective date, supersede
all other agreements or arrangements between the parties with regard to the
subject matter hereof.
12. Binding Agreement.
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This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
assigns. The obligations of the Company under this Agreement shall not be
terminated by reason of any liquidation, dissolution, bankruptcy, cessation of
business or similar event relating to the Company. This Agreement shall not be
terminated by reason of any merger, consolidation or reorganization of the
Company, but shall be binding upon and inure to the benefit of the surviving or
resulting entity.
13. Modification.
No waiver or modification of this Agreement or of any covenant, condition
or limitation herein contained shall be valid unless in writing and duly
executed by the party to be charged therewith and no evidence of any waiver or
modification shall be offered or received in evidence of any proceeding,
arbitration or litigation between the parties hereto arising out of or affecting
this Agreement, or the rights or obligations of the parties thereunder, unless
such waiver or modification is in writing, duly executed as aforesaid.
14. Severability.
All agreements and covenants contained herein are severable, and in the
event any of them shall be held to be invalid or unenforceable by any court of
competent jurisdiction, this Agreement shall be interpreted as if such invalid
agreements or warrants were not contained herein.
15. Manner of Giving Notice
All notices, requests and demands to or upon the respective parties hereto
shall be sent by hand, certified mail, overnight air courier service or
telecopier (if within a reasonable time a permanent copy is given by any of the
other methods described above), in each case with all applicable charges paid or
otherwise provided for, addressed as follows or to such other address as may
hereafter be designated in writing by the respective parties hereto:
To Company:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
To Employee:
Robert J. Schulhof
3621 Silver Spur Lane
Acton, CA 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
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Such notices, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
16. Waiver.
If either party should waive any breach of any provision of this Agreement,
such party shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.
17. Remedies.
In the event of a breach of this Agreement, the non-breaching party will be
entitled to such legal and equitable relief as may be provided by law, and shall
further be entitled to recover all costs and expenses, including reasonable
attorneys' fees, incurred in enforcing the non-breaching party's rights
hereunder.
18. Headings.
The headings have been inserted for convenience only and shall not be
deemed to limit or otherwise affect any of the provisions of this Agreement.
19. Choice of Law.
It is the intention of the parties hereto that this Agreement and the
performance hereunder be construed in accordance with, under and pursuant to the
laws of the State of [Delaware] without regard to the jurisdiction in which any
action or special proceeding may be instituted.
20. Counterparts.
This Agreement may be executed in two (2) counterparts, each of which shall
be deemed an original, and both of which together shall constitute one and the
same instrument.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first stated above.
COMPANY:
OMEGA ORTHODONTICS, INC.
By: /s/ C. Joel Glovsky
------------------------
Name: C. Joel Glovsky
Title: Chairman of the Board
EMPLOYEE
/s/ Robert J. Schulhof
---------------------------
Robert J. Schulhof
12
Exhibit 10.22
OMEGA ORTHODONTICS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of May 1, 1997, between DR. DEAN C. BELLAVIA,
of Buffalo, New York (the "Employee") and OMEGA ORTHODONTICS, INC., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Employee desires to be employed by the Company, and the
Company desires to employ the Employee, on the terms, covenants and conditions
hereinafter set forth in this Agreement.
NOW, THEREFORE, for the reasons set forth above, and in consideration
of the mutual promises and agreements hereinafter set forth, the Company and the
Employee agree as follows:
1. Employment and Duties.
1.1 Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby employs and engages the Employee to hold the title
of Director of Affiliate Programs and perform the duties of such position as
designated by the board of directors of the Company (the "Board of Directors").
The Employee hereby accepts such employment and agrees to serve the Company in
such capacity for the period of this Agreement.
1.2 Duties. The Employee's duties shall include: all design, scheduling
the installation and following up on the effectiveness of all the managerial
systems used by the Company's affiliated orthodontic practices as outlined in
the Affiliate Optimization Program, as revised from time to time; management of
the effectiveness and productivity of the consultants used to optimize and
maintain the affiliate practices' programs; and additional duties that the
Employee and the Company agree upon.
2. Term of Employment.
The term of this Agreement shall be for a period of three (3) years
commencing on the closing of the initial public offering of the Company's common
stock (the "Effective Date") and expiring at midnight on the day immediately
preceding the third anniversary of the Effective Date, unless terminated prior
to that date as provided in Section 7 of this Agreement. Commencing on the third
anniversary of the Effective Date, and on each anniversary thereafter, the term
of this Agreement shall be automatically extended for an additional year, unless
either party gives notice of termination as provided in Subsection 5.7 of this
Agreement.
3. Devotion to Duties.
The Employee agrees that during the period that he is employed
hereunder he shall devote the time necessary to complete his duties hereunder
and shall use his best efforts to promote
<PAGE>
the interests of the Company. The parties acknowledge and agree that,
notwithstanding the foregoing, the Employee may continue his orthodontic
consulting business and may continue to pursue his academic and writing
endeavors; provided, however, that such endeavors shall neither materially
adversely affect or impair his ability to meet his obligations hereunder.
4. Compensation of Employee.
4.1. Affiliate Payments and Base Salary.During the term of this
Agreement, the Company shall pay to the Employee as compensation for the
services to be performed by the Employee hereunder as follows:
(a) Beginning on the Effective Date, the Company shall pay the
Employee $10,000 per month as an advance (the "Advance Amount") for
compensation earned according to the following schedule: (i) one-time
payments of Seven Thousand Five Hundred Dollars ($7,500) for each
orthodontic practice affiliated with the Company in which the Employee
initiates the optimization of the Omega Exceptional Practice Model (the
"Model") (the "New Affiliate Payments"); and (ii) Two Hundred Eight and
333/1000 Dollars ($208.333) per month for each orthodontic practice
affiliated with the Company in which the optimization of the Model was
previously initiated by the Employee (the "Existing Affiliate Payments"
and, collectively, with the New Affiliate Payments, the "Affiliate
Payments"). At the end of each three full calendar months following the
month in which the Effective Date occurs (a "Quarter"), the Company
shall review the Advance Amount and the Affiliate Payments for such
Quarter. If the Advance Amount exceeds the Affiliate Payments, the
Advance Amount for the next Quarter shall be reduced by the amount of
such excess.
(b) Beginning with the first month after the Company has
completed affiliations with an aggregate of fifteen orthodontic
practices, the Company shall pay the Employee at the rate of $10,000
per month (the "Base Salary") for that month and each month thereafter
during the remainder of the term of this Agreement.
(c) The Affiliate Payments and the Base Salary shall be payable
in semi-monthly installments in accordance with the Company's normal
payroll practice. Commencing on the third anniversary of the Effective
Date and on each anniversary thereafter, or as soon as practicable
thereafter, the Compensation Committee of the Board of Directors (the
"Compensation Committee"), or the Board of Directors if the
Compensation Committee is not then appointed, shall review the
Affiliate Payments or the Base Salary, as the case may be, and shall
authorize, in its discretion, an appropriate increase thereto.
4.2. Bonus. In addition to the compensation set forth elsewhere in this
Section 4, for each year or portion thereof during the term of this Agreement
and any extensions thereof, the Employee shall be eligible to receive a bonus in
an amount to be determined by the Compensation Committee, or the Board of
Directors if the Compensation Committee is not then
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appointed, in its discretion, based upon its evaluation of the Employee's
performance during such year or portion thereof.
The Employee shall also be eligible to participate in any program that
pays bonus compensation for finding orthodontic practices that affiliate with
the Company, if such a program is adopted by the Company. Such bonuses, if any,
would be payable to the Employee only with respect to orthodontic practices that
were previously clients of Full Optimization.
4.3. Benefits. Unless otherwise permitted by resolution of the Board of
Directors, the Employee shall not be entitled to participate, during the term he
is employed hereunder, in any regular employee benefit and deferred compensation
plans established by the Company.
4.4. Office and Secretary. The Employee shall provide his own office
and secretarial help as needed to perform his duties hereunder, subject to
reimbursement by the Company as provided in Subsection 4.5 hereof for providing
such office and secretarial help. The parties understand and agree that such
office shall be located at 44 Capen Boulevard, Buffalo, New York, unless the
parties agree otherwise.
4.5. Reimbursement of Expenses.The Company shall provide for the
payment or reimbursement of all reasonable and necessary expenses incurred by
the Employee in connection with the performance of his duties under this
Agreement. The parties understand and agree that the Employee may maintain a
charge card account in his name for his exclusive use for reimbursable expenses
and that the Company will reimburse the Employee utilizing the monthly charge
account statement. in accordance with the Company's expense reimbursement
policy, as such may change from time to time.
4.6 Incentive Stock Options. The Company shall grant to the Employee,
upon the execution of this Agreement, an incentive stock option under the
Company's Incentive Stock Plan to acquire 50,000 shares of the Company's Common
Stock, par value $.01 per share, at an exercise price equal to the initial
public offering price for the Company's Common Stock. Such option shall be fully
vested and exercisable on the first anniversary of the date of execution of this
Agreement.
5. Termination of Employment.
5.1. Termination For Cause. "Termination For Cause," as hereinafter
defined, may be effected by the Company at any time during the term of this
Agreement by written notification to the Employee pursuant to Subsection 5.7 of
this Agreement. Upon Termination For Cause, the Employee shall immediately be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Employee in connection with his
duties hereunder, all to the date of termination, but the
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Employee shall not be paid any other compensation or reimbursement of any kind,
including without limitation, severance compensation.
"Termination For Cause" shall mean termination by the Company of the
Employee's employment by the Company by reason of the Employee's:
(i) Commission of a crime of moral turpitude or a violation of law
which results in criminal charges, fines or penalties or an order
which prevents the Employee from performing his duties hereunder;
(ii) Deliberate dishonesty towards, fraud upon, or deliberate injury
or attempted injury to the Company or any subsidiary or affiliate
thereof; or
(iii)Willful failure to perform material duties and responsibilities
of the Employee hereunder or a material breach of this Agreement
by the Employee, which failure or breach continues for more than
thirty (30) days after written notice is given to the Employee
pursuant to a two-thirds vote of all of the members of the Board
of Directors of the Company, such notice to set forth in
reasonable detail the nature of such failure or breach.
5.2. Termination Other Than For Cause. Notwithstanding any other
provisions of this Agreement, the Company or the Employee may effect a
"Termination Other Than For Cause," as hereinafter defined, at any time upon
giving written notice to the other party of such termination pursuant to
Subsection 5.7 of this Agreement. Upon any Termination Other Than For Cause, the
Employee shall immediately be paid all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Company in which the Employee is a
participant to the full extent of the Employee's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by the
Employee in connection with his duties hereunder, all to the date of
termination, and all severance compensation provided in Subsection 6.2, but no
other compensation or reimbursement of any kind.
"Termination Other Than For Cause" shall mean:
(a) termination by the Company of the employment of the Employee with
the Company for any reason other than a termination under Section 5.1, 5.3 or
5.4 hereof;
(b) termination by the Employee of the Employee's employment with the
Company for Good Reason. Good Reason shall mean the occurrence of any of the
following events:
(i) a substantial adverse change, not consented to by the
Employee, in the nature or scope of the Employee's responsibilities,
authorities, powers, functions or duties from the responsibilities,
authorities, powers, functions or duties exercised by the Employee
immediately prior to the Change in Control; or
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(ii) a reduction in the Employee's annual base salary as in
effect on the date hereof or as the same may be increased from time to
time; or
(iii) the relocation of the Company's offices at which the
Employee is principally employed immediately prior to the date of a
Change in Control to a location more than twenty-five (25) miles from
such offices, provided that such relocation results in an addition of
more than ten (10) miles to the current commute of the Employee
immediately prior to the date of the Change in Control, or the
requirement by the Company for the Employee to be based anywhere other
than the Company's offices at such new location, except for required
travel on the Company's business to an extent substantially consistent
with the Employee's business travel obligations immediately prior to
the Change in Control; or
(iv) the failure by the Company to pay to the Employee any
portion of his compensation or to pay to the Employee any portion of
an installment of deferred compensation under any deferred
compensation program of the Company within fifteen (15) days of the
date such compensation is due without prior written consent of the
Employee; or
(v) the failure by the Company to comply with any term or
u provision under this Agreement; or
(vi) the failure by the Company to obtain an effective agreement
from any successor to assume and agree to perform this Agreement.
5.3. Termination by Reason of Disability. If, during the term of this
Agreement, the Employee, in the reasonable judgment of the Board of Directors,
has failed to perform his duties under this Agreement on account of illness or
physical or mental incapacity, and such illness or incapacity continues for a
period of more than twelve (12) consecutive months, the Company shall have the
right to terminate the Employee's employment hereunder by written notification
to the Employee pursuant to Subsection 5.7 of this Agreement and payment to the
Employee of all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans and any appropriate business
expenses incurred by the Employee in connection with his duties hereunder, all
to the date of termination, with the exception of medical and dental benefits
which shall continue through the expiration of this Agreement, but the Employee
shall not be paid any other compensation or reimbursement of any kind, including
without limitation, severance compensation.
5.4. Death. In the event of the Employee's death during the term of
this Agreement, the Employee's employment shall be deemed to have terminated as
of the last day of the month during which his death occurs and the Company shall
pay to his estate or such
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beneficiaries as the Employee may from time to time designate all accrued
salary, bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which the Employee is a participant to the full extent of the
Employee's rights under such plans and any appropriate business expenses
incurred by the Employee in connection with his duties hereunder, and to the
date of termination, but the Employee's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation.
5.5. Voluntary Termination. In the event of a "Voluntary Termination,"
as hereinafter defined, the Company shall immediately pay all accrued salary,
bonus compensation to the extent earned, vested deferred compensation (other
than pension plan or profit sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Company in which the Employee is a participant to the full extent of the
Employee's rights under such plans and any appropriate business expenses
incurred by the Employee in connection with his duties hereunder, all to the
date of termination, but no other compensation or reimbursement of any kind,
including without limitation, severance compensation.
"Voluntary Termination" shall mean termination by the Employee of the
Employee's employment by the Company other than (i) for Good Reason as described
in Section 5.2, (ii) termination by reason of the Employee's disability as
described in Subsection 5.3, and (iii) termination by reason of the Employee's
death as described in Subsection 5.4.
5.6. Termination Upon a Change in Control. In the event of a
"Termination Upon a Change in Control," as hereinafter defined, the Employee
shall immediately be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Employee is a participant
to the full extent of the Employee's rights under such plans and any appropriate
business expenses incurred by the Employee in connection with his duties
hereunder, all to the date of termination, and all severance compensation
provided in Subsection 6.1, but no other compensation or reimbursement of any
kind.
"Termination Upon a Change in Control" shall mean Termination Other
Than For Cause occurring within twenty-four (24) months after a "Change in
Control," as hereinafter defined.
"Change in Control" shall mean (i) the date on which the Company first
determines that any person and all other persons which constitute a group,
within the meaning of Section 13(d)(3) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), have acquired direct or indirect
beneficial ownership, with the meaning of Rule 13d-3 under the Exchange Act, of
twenty percent (20%) or more of the Company's outstanding securities, unless a
majority of the "Continuing Directors," as hereinafter defined, approves the
acquisition not later than ten (10) business days after the Company makes that
determination, or (ii) the first day on which a majority of the members of the
Board of Directors are not Continuing Directors. Notwithstanding the foregoing,
issuances of the Company's securities in connection with the
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Company's initial public offering, expected to be completed during 1997, shall
not constitute or be deemed to constitute a "Change in Control."
"Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors who (i) was a member of the Board of Directors
on December 31, 1996, (ii) has been a member of the Board of Directors for the
two (2) years immediately preceding such date of determination, or (iii) was
nominated for election or elected to the Board of Directors with the affirmative
vote of the greater of (A) a majority of the Continuing Directors who were
members of the Board of Directors at the time of such nomination or election or
(B) at lease three (3) Continuing Directors.
5.7. Notice of Termination. The Company may effect a termination of
this Agreement pursuant to the provisions of this Section 5 upon giving ninety
(90) days' written notice to the Employee of such termination. The Employee may
effect a termination of this Agreement pursuant to the provisions of this
Section 5 upon giving ninety (90) days' written notice to the Company of such
termination.
5.8. Limitation on Termination Benefits.No payments by the Company to
or for the benefit of the Employee under this Agreement or any other agreement
or plan pursuant to which he is entitled to receive payments or benefit shall be
non-deductible to the Company by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended, (the "Code") or any successor
provision relating to parachute payments. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G, any such payments exceed the amount which
can be deducted by the Company, such payments shall be reduced to the maximum
amount which can be deducted by the Company. To the extent that payments
exceeding such maximum deductible amount have been made to or for the benefit of
the Employee, such excess payments shall be refunded to the Company with
interest thereon at the applicable Federal Rate determined under Section 1274(d)
of the Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be non-deductible to the Company by reason of
the operation of said Section 280G. To the extent that there is more than one
method of reducing the payments to bring them within the limitations of said
Section 280G, the Employee shall determine which method shall be followed,
provided that if the Employee fails to make such determination within forty-five
(45) days after the Company has sent him written notice of the need for such
reduction, the Company may determine the method for such reduction in its sole
discretion.
5.9 Determination of Termination Benefits. If any dispute between the
Company and the Employee as to any of the amounts to be determined under this
Section 5, or the method of calculating such amounts, cannot be resolved by the
Company and the Employee, either party after giving three (3) days written
notice to the other, may refer the dispute to a partner in the Boston office of
a firm of independent certified public accountants selected jointly by the
Company and the Employee. The determination of such partner as to the amount to
be determined under this Section 5 and the method of calculating such amounts
shall be final and binding on both the Company and the Employee. The Company
shall bear the costs of any such determination.
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6. Severance Compensation.
6.1. Termination Upon Change in Control or Termination Other Than For
Cause. In the event the Employee's employment is terminated in a Termination
Upon a Change in Control or a Termination Other Than For Cause, the Employee
shall be paid as severance compensation the Base Salary (at the rate payable at
the time of such termination ) for the longer of (a) twelve (12) months or (b)
the remaining term of this Agreement, on the dates specified in Subsection 4.1.
Notwithstanding any provision in this Subsection 6.1 to the contrary,
the Employee may, in the Employee's sole discretion, by delivery of a notice to
the Company within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Company a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to the Employee pursuant to this Subsection 6.1. Such
present value shall be determined as of the date of delivery of the notice of
election by the Employee and shall be based on a discount rate equal to the
interest rate on 90-day United States Treasury bills, as reported in the Wall
Street Journal, or similar publication, on the date of delivery of the election
notice. If the Employee elects to receive a lump sum severance payment, the
Company shall make such payment to the Employee within ten (10) days following
the date on which the Employee notifies the Company of the Employee's election.
In addition to the severance payment payable under this Subsection 6.1,
the Employee shall be entitled to an accelerated vesting of any awards granted
to the Employee under the Company's Incentive Stock Plan.
6.2. Termination Upon Any Other Event. In the event of a Voluntary
Termination, Termination For Cause, termination by reason of the Employee's
disability pursuant to Subsection 5.5 or termination by reason of the Employee's
death pursuant to Subsection 5.6, the Employee or his estate shall not be paid
any severance compensation.
7. Obligations Contingent on Performance.
The obligations of the Company under this Agreement, including its
obligation to pay the compensation provided for herein, shall be contingent upon
the Employee's performance of his obligations under this Agreement.
8. Confidentiality.
The Employee agrees to hold in strict confidence all information
concerning any matters affecting or relating to the business of the Company,
including without limiting the generality of the foregoing its manner of
operation, plans, protocols, processes, computer programs, tenant lists, client
lists, marketing information and analysis, or other data, without regard to
whether all of the foregoing matters will be deemed confidential or material.
Such information does not include the systems, forms, books, manuals, concepts
and anything relating to the Employee's
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copyrighted material referred to in Section 9 hereof. The Employee agrees that
he will not, directly or indirectly, use the Company's information for the
benefit of others than the Company or disclose or communicate any of such
information in any manner whatsoever other than to the directors, officers,
employees, agents and representatives of the Company who need to know such
information, who shall be informed by the Employee of the confidential nature of
such information and directed by the Employee to treat such information
confidentially. Upon the Company's request, the Employee shall return all
information furnished to him related to the business of the Company.
The above limitations on use and disclosure shall not apply to
information which the Employee can demonstrate: (a) was known to the Employee
before joining the Company and was not contributed to the Company by the
Employee; (b) is learned by the Employee from a third party entitled to disclose
it; or (c) becomes known publicly other than through the Employee. The parties
hereto stipulate that all such information is material and confidential and
gravely affects the effective and successful conduct of the business of the
Company and the Company's good will, and that any breach of the terms of this
Section 8 shall be a material breach of this Agreement. The terms of this
Section 8 shall remain in effect during the term of this Agreement and for a
period of two (2) years thereafter.
9. Use of Proprietary Information.
9.1 Company Proprietary Information. The Employee recognizes that the
Company possesses a proprietary interest in all of the information described in
Section 8 and has the exclusive right and privilege to use, protect by
copyright, patent or trademark, manufacture or otherwise exploit the processes,
ideas and concepts described therein to the exclusion of the Employee, except as
otherwise agreed between the Company and the Employee in writing. The Employee
expressly agrees that any products, inventions, discoveries or improvements made
by the Employee, his agents or affiliates, during the term of this Agreement,
based on or arising out of the information described in Section 8 shall be the
property of and inure to the exclusive benefit of the Company. The Employee
further agrees that any and all products, inventions, discoveries or
improvements developed by the Employee and intended solely for the use of the
Company (whether or not able to be protected by copyright, patent or trademark)
during the term or any extension hereof shall be promptly disclosed to the
Company and shall be used exclusively by the Company.
9.2 Employee Proprietary Information. The Company recognizes that the
forms, systems and concepts used to develop certain of the Company's manuals,
forms, systems and concepts are copyrighted property of the Employee and The
Bio-Engineering Co., of Buffalo, NY (the "Employee Proprietary Information"),
and that the Employee and The Bio-Engineering Co. retain the legal rights to the
Employee Proprietary Information and may continue to use, publish and do
whatever the Employee and The Bio-Engineering Co. deem appropriate with the
Employee Proprietary Information. The Company acknowledges and agrees that the
Company may only use the Employee Proprietary Information for the betterment of
its affiliated orthodontic practices and may not publish, sell or in any way use
the Employee Proprietary Information
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for any other purpose or transfer to any other entity that the Company wishes
to, without the prior written consent of the Employee and The Bio-Engineering
Co.
10. Non-Competition Agreement.
10.1. Non-Competition. The Employee agrees that, during the term of
this Agreement and for a period of one (1) year thereafter, he shall not,
without the prior written consent of the Company, directly or indirectly, own,
manage, operate, control, be connected with as an officer, employee, partner,
consultant or otherwise, or otherwise engage or participate in, except as an
employee of the Company, or any corporation directly or indirectly controlled by
it, any corporation or other business entity engaged in providing management
services to the orthodontic industry, except his orthodontic consulting business
referred to in Section 3 hereof. Notwithstanding the foregoing, the ownership by
the Employee of less than two percent (2%) of any class of the outstanding
capital stock of any corporation conducting a business competitive with the
Company which is regularly traded on a national securities exchange or an
over-the-counter market shall not be a violation of the foregoing covenant.
The Employee hereby acknowledges and agrees that the provisions set
forth in this Subsection 10.1 constitute a reasonable restriction on his ability
to compete with the Company.
10.2. Non-Solicitation. Without the prior written consent of the
Company, during the term of this Agreement and for a period of one (1) year
thereafter, the Employee shall not contact or solicit, directly or indirectly,
any customer, client, affiliate orthodontist or orthodontic entity, tenant or
account whose identity the Employee obtained through association with the
Company, regardless of the geographical location of such customer, client,
affiliate orthodontist or orthodontic entity, tenant or account, nor shall the
Employee, directly or indirectly, entice or induce, or attempt to entice or
induce, any other employee of the Company to leave such employ, nor shall the
Employee employ any such person in any business similar to or in competition
with that of the Company during the term of this Agreement and for a period of
one (1) year thereafter. The Employee hereby acknowledges and agrees that the
provisions set forth in this Subsection 10.2 constitute a reasonable restriction
on his ability to compete with the Company.
10.3. Savings Provision. The parties hereto agree that, in the event a
court of competent jurisdiction shall determine that the geographical or
durational elements of this covenant are unenforceable, such determination shall
not render the entire covenant unenforceable. Rather, the excessive aspects of
the covenant shall be reduced to the threshold which is enforceable, and the
remaining aspects shall not be affected thereby.
10.4. Equitable Relief. The Employee acknowledges that the extent of
damages to the Company from a breach of Sections 8, 9 and 10 of this Agreement
would not be readily quantifiable or ascertainable, that monetary damages would
be inadequate to make the Company whole in case of such a breach, and that there
is not and would not be an adequate remedy at law for such a breach. Therefore,
the Employee specifically agrees that the Company is entitled to injunctive or
other equitable relief from a breach of Sections 8, 9 and 10 of this Agreement,
and
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hereby waives and covenants not to assert against a prayer for such relief that
there exists an adequate remedy at law, in monetary damages or otherwise.
11. Entire Agreement.
This Agreement contains the complete agreement concerning the
employment arrangement between the parties and shall, as of the effective date,
supersede all other agreements or arrangements between the parties with regard
to the subject matter hereof.
12. Binding Agreement.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
assigns. The obligations of the Company under this Agreement shall not be
terminated by reason of any liquidation, dissolution, bankruptcy, cessation of
business or similar event relating to the Company. This Agreement shall not be
terminated by reason of any merger, consolidation or reorganization of the
Company, but shall be binding upon and inure to the benefit of the surviving or
resulting entity.
13. Modification.
No waiver or modification of this Agreement or of any covenant,
condition or limitation herein contained shall be valid unless in writing and
duly executed by the party to be charged therewith and no evidence of any waiver
or modification shall be offered or received in evidence of any proceeding,
arbitration or litigation between the parties hereto arising out of or affecting
this Agreement, or the rights or obligations of the parties thereunder, unless
such waiver or modification is in writing, duly executed as aforesaid.
14. Severability.
All agreements and covenants contained herein are severable, and in the
event any of them shall be held to be invalid or unenforceable by any court of
competent jurisdiction, this Agreement shall be interpreted as if such invalid
agreements or warrants were not contained herein.
15. Manner of Giving Notice
All notices, requests and demands to or upon the respective parties
hereto shall be sent by hand, certified mail, overnight air courier service or
telecopier (if within a reasonable time a permanent copy is given by any of the
other methods described above), in each case with all applicable charges paid or
otherwise provided for, addressed as follows or to such other address as may
hereafter be designated in writing by the respective parties hereto:
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To Company:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
To Employee:
Dean C. Bellavia
44 Capen Boulevard
Buffalo, New York 14214
Telephone: (716) 834-5857
Facsimile: (716) 834-4923
Such notices, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
16. Waiver.
If either party should waive any breach of any provision of this
Agreement, such party shall not thereby be deemed to have waived any preceding
or succeeding breach of the same or any other provision of this Agreement.
17. Remedies.
In the event of a breach of this Agreement, the non-breaching party
will be entitled to such legal and equitable relief as may be provided by law,
and shall further be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred in enforcing the non-breaching party's
rights hereunder.
18. Headings.
The headings have been inserted for convenience only and shall not be
deemed to limit or otherwise affect any of the provisions of this Agreement.
19. Choice of Law.
It is the intention of the parties hereto that this Agreement and the
performance hereunder be construed in accordance with, under and pursuant to the
laws of the State of Delaware without regard to the jurisdiction in which any
action or special proceeding may be instituted.
20. Counterparts.
This Agreement may be executed in two (2) counterparts, each of which
shall be deemed an original, and both of which together shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first stated above.
COMPANY:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
--------------------------
Name: Robert J. Schulhof
Title: President
EMPLOYEE
/s/ Dean C. Bellavia
--------------------------
Dean C. Bellavia
13
Exhibit 10.23
OMEGA ORTHODONTICS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of May 1, 1997, between F. V. ("Sonny") ELLIOTT,
of Houston, Texas (the "Employee") and OMEGA ORTHODONTICS, INC., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Employee desires to be employed by the Company, and the
Company desires to employ the Employee, on the terms, covenants and conditions
hereinafter set forth in this Agreement.
NOW, THEREFORE, for the reasons set forth above, and in consideration of
the mutual promises and agreements hereinafter set forth, the Company and the
Employee agree as follows:
1. Employment.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby employs and engages the Employee to hold the title of Director of
Professional Relations and Staff Development and perform the duties of such
position designated by the board of directors of the Company (the "Board of
Directors"), which duties shall include, without limitation, (a) managing the
Company's affiliate enrollment program through advertising, seminars, personal
communication and other appropriate means and (b) training the Company's
personnel and affiliates and their personnel in communication skills and
interpersonal relationships. In such capacity, and subject to review by the
Board of Directors, the Employee shall also perform such duties and
responsibilities as may be assigned to him from time to time by the Board of
Directors. The Employee hereby accepts such employment and agrees to serve the
Company in such capacity for the period of this Agreement.
2. Term of Employment.
The term of this Agreement shall be for a period of three (3) years
commencing on the closing of the initial public offering of the Company's common
stock (the "Effective Date") and expiring at midnight on the day immediately
preceding the third anniversary of the Effective Date, unless terminated prior
to that date as provided in Section 7 of this Agreement. Commencing on the third
anniversary of the Effective Date, and on each anniversary thereafter, the term
of this Agreement shall be automatically extended for an additional year, unless
either party gives notice of termination as provided in Subsection 5.7 of this
Agreement.
3. Devotion to Duties.
The Employee agrees that during the period that he is employed hereunder he
shall devote substantially all his business time and attention to the business
and affairs of the Company and shall use his best efforts to promote the
interests of the Company. The parties acknowledge and
<PAGE>
agree that, notwithstanding the foregoing, the Employee may continue his
orthodontic consulting and seminar business; provided, however, that such
business does not materially adversely affect or impair his ability to meet his
obligations hereunder.
4. Compensation of Employee.
4.1. Affiliate Payments and Base Salary.During the term of this Agreement,
the Company shall pay to the Employee as compensation for the services to be
performed by the Employee hereunder as follows:
(a) Beginning on the Effective Date, the Company shall pay the
Employee $10,000 per month as an advance (the "Advance Amount") for
compensation earned according to the following schedule: (i) one time
payments of $2,500 for each orthodontic practice that affiliates with the
Company following the Effective Date in the month, (ii) $1,250 per day per
seminar conducted in the offices of an affiliated orthodontic practice in
the month, and (iii) $300 per affiliated orthodontic practice coached in
the month (the payments referred to in clauses (i) through (iii) are
referred to collectively as the "Affiliate Payments"). At the end of each
three full calendar months following the month in which the Effective Date
occurs (a "Quarter"), the Company shall review the Advance Amount and the
Affiliate Payments for such Quarter. If the Advance Amount exceeds the
Affiliate Payments, the Advance Amount for the next Quarter shall be
reduced by the amount of such excess.
(b) Beginning with the first month after the Company has completed
affiliations with an aggregate of fifteen orthodontic practices, the
Company shall pay the Employee at the rate of $10,000 per month (the "Base
Salary") for that month and each month thereafter during the remainder of
the term of this Agreement.
(c) The Affiliate Payments and Base Salary shall be payable in
installments in accordance with the Company's normal payroll practice.
Commencing on the third anniversary of the Effective Date and on each
anniversary thereafter, or as soon as practicable thereafter, the
Compensation Committee of the Board of Directors (the "Compensation
Committee"), or the Board of Directors if the Compensation Committee is not
then appointed, shall review the Affiliate Payments or the Base Salary, as
the case may be, and shall authorize, in its discretion, an appropriate
increase thereto.
4.2. Bonus. In addition to the compensation set forth elsewhere in this
Section 4, for each year or portion thereof during the term of this Agreement
and any extensions thereof, the Employee shall be eligible to receive a bonus in
an amount to be determined by the Compensation Committee, or the Board of
Directors if the Compensation Committee is not then appointed, in its
discretion, based upon its evaluation of the Employee's performance during such
year or portion thereof.
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The Employee shall also be eligible to participate in any program that pays
bonus compensation for finding orthodontic practices that affiliate with the
Company, if such a program is adopted by the Company. Such bonuses, if any,
would be payable to the Employee only with respect to orthodontic practices that
were previously clients of Paradigm Practice Management or Elliott Enterprises.
4.3. Benefits. The Employee shall be entitled to participate, during the
term he is employed hereunder, in all regular employee benefit and deferred
compensation plans established by the Company, including, without limitation,
any medical plans, life insurance, and personal catastrophe and disability
insurance. The Employee shall be entitled during the period that he is employed
to such paid vacation as is provided in the policy adopted by the Board of
Directors.
4.4. Office and Secretary. The Employee shall provide his own office and
secretarial assistance as needed for the performance of his duties, subject to
reimbursement by the Company as provided in Subsection 4.5 hereof for providing
such office and secretarial assistance.
4.5. Reimbursement of Expenses.The Company shall provide for the payment or
reimbursement of all reasonable and necessary expenses incurred by the Employee
in connection with the performance of his duties under this Agreement in
accordance with the Company's expense reimbursement policy, as such may change
from time to time.
4.6 Incentive Stock Options. The Company shall grant to the Employee, upon
the execution of this Agreement, an incentive stock option under the Company's
Incentive Stock Plan to acquire 150,000 shares of the Company's Common Stock,
par value $.01 per share, at an exercise price equal to the initial public
offering price for the Company's Common Stock. Such option shall vest in equal
installments on each of the first three anniversaries of the date of execution
of this Agreement.
5. Termination of Employment.
5.1. Termination For Cause. "Termination For Cause," as hereinafter
defined, may be effected by the Company at any time during the term of this
Agreement by written notification to the Employee pursuant to Subsection 5.7 of
this Agreement. Upon Termination For Cause, the Employee shall immediately be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Employee in connection with his
duties hereunder, all to the date of termination, but the Employee shall not be
paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
"Termination For Cause" shall mean termination by the Company of the
Employee's employment by the Company by reason of the Employee's:
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(i) Commission of a crime of moral turpitude or a violation of law
which results in criminal charges, fines or penalties or an order which
prevents the Employee from performing his duties hereunder;
(ii) Deliberate dishonesty towards, fraud upon, or deliberate injury
or attempted injury to the Company or any subsidiary or affiliate thereof,
or
(iii) Willful failure to perform material duties and responsibilities
of the Employee hereunder or a material breach of this Agreement by the
Employee, which failure or breach continues for more than thirty (30) days
after written notice is given to the Employee pursuant to a two-thirds vote
of all of the members of the Board of Directors of the Company, such notice
to set forth in reasonable detail the nature of such failure or breach.
5.2. Termination Other Than For Cause. Notwithstanding any other provisions
of this Agreement, the Company or the Employee may effect a "Termination Other
Than For Cause," as hereinafter defined, at any time upon giving written notice
to the other party of such termination pursuant to Subsection 5.7 of this
Agreement. Upon any Termination Other Than For Cause, the Employee shall
immediately be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Employee is a participant
to the full extent of the Employee's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Employee in connection
with his duties hereunder, all to the date of termination, and all severance
compensation provided in Subsection 6.2, but no other compensation or
reimbursement of any kind.
"Termination Other Than For Cause" shall mean:
(a) termination by the Company of the employment of the Employee with the
Company for any reason other than a termination under Section 5.1, 5.3 or 5.4
hereof;
(b) termination by the Employee of the Employee's employment with the
Company for Good Reason. Good Reason shall mean the occurrence of any of the
following events:
(i) a substantial adverse change, not consented to by the Employee, in
the nature or scope of the Employee's responsibilities, authorities,
powers, functions or duties from the responsibilities, authorities, powers,
functions or duties exercised by the Employee immediately prior to the
Change in Control; or
(ii) a reduction in the Employee's annual base salary as in effect on
the date hereof or as the same may be increased from time to time; or
(iii) the relocation of the Company's offices at which the Employee is
principally employed immediately prior to the date of a Change in Control
to a location more than twenty-five (25) miles from such offices, provided
that such
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relocation results in an addition of more than ten (10) miles to the
current commute of the Employee immediately prior to the date of the
Change in Control, or the requirement by the Company for the Employee to
be based anywhere other than the Company's offices at such new location,
except for required travel on the Company's business to an extent
substantially consistent with the Employee's business travel obligations
immediately prior to the Change in Control; or
(iv) the failure by the Company to pay to the Employee any portion of
his compensation or to pay to the Employee any portion of an installment of
deferred compensation under any deferred compensation program of the
Company within fifteen (15) days of the date such compensation is due
without prior written consent of the Employee; or
(v) the failure by the Company to comply with any term or provision
under this Agreement; or
(vi) the failure by the Company to obtain an effective agreement from
any successor to assume and agree to perform this Agreement.
5.3. Termination by Reason of Disability. If, during the term of this
Agreement, the Employee, in the reasonable judgment of the Board of Directors,
has failed to perform his duties under this Agreement on account of illness or
physical or mental incapacity, and such illness or incapacity continues for a
period of more than twelve (12) consecutive months, the Company shall have the
right to terminate the Employee's employment hereunder by written notification
to the Employee pursuant to Subsection 5.7 of this Agreement and payment to the
Employee of all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Employee in connection with his
duties hereunder, all to the date of termination, with the exception of medical
and dental benefits which shall continue through the expiration of this
Agreement, but the Employee shall not be paid any other compensation or
reimbursement of any kind, including without limitation, severance compensation.
5.4. Death. In the event of the Employee's death during the term of this
Agreement, the Employee's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs and the Company shall
pay to his estate or such beneficiaries as the Employee may from time to time
designate all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Employee is a participant to the full
extent of the Employee's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Employee in connection with his
duties hereunder, and to the date of termination, but the Employee's estate
shall not be paid any other compensation or reimbursement of any kind, including
without limitation, severance compensation.
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5.5. Voluntary Termination. In the event of a "Voluntary Termination," as
hereinafter defined, the Company shall immediately pay all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Company in which
the Employee is a participant to the full extent of the Employee's rights under
such plans, accrued vacation pay and any appropriate business expenses incurred
by the Employee in connection with his duties hereunder, all to the date of
termination, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation.
"Voluntary Termination" shall mean termination by the Employee of the
Employee's employment by the Company other than (i) for Good Reason as described
in Section 5.2, (ii) termination by reason of the Employee's disability as
described in Subsection 5.3, and (iii) termination by reason of the Employee's
death as described in Subsection 5.4.
5.6. Termination Upon a Change in Control. In the event of a "Termination
Upon a Change in Control," as hereinafter defined, the Employee shall
immediately be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Employee is a participant
to the full extent of the Employee's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Employee in connection
with his duties hereunder, all to the date of termination, and all severance
compensation provided in Subsection 6.1, but no other compensation or
reimbursement of any kind.
"Termination Upon a Change in Control" shall mean a Termination Other than
For Cause occurring within twenty-four (24) months after a "Change in Control,"
as hereinafter defined.
"Change in Control" shall mean (i) the date on which the Company first
determines that any person and all other persons which constitute a group,
within the meaning of Section 13(d)(3) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), have acquired direct or indirect
beneficial ownership, with the meaning of Rule 13d-3 under the Exchange Act, of
twenty percent (20%) or more of the Company's outstanding securities, unless a
majority of the "Continuing Directors," as hereinafter defined, approves the
acquisition not later than ten (10) business days after the Company makes that
determination, or (ii) the first day on which a majority of the members of the
Board of Directors are not Continuing Directors. Notwithstanding the foregoing,
issuances of the Company's securities in connection with the Company's initial
public offering, expected to be completed during 1997, shall not constitute or
be deemed to constitute a "Change in Control."
"Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors who (i) was a member of the Board of Directors
on December 31, 1996, (ii) has been a member of the Board of Directors for the
two (2) years immediately preceding such date of determination, or (iii) was
nominated for election or elected to the Board of Directors with the affirmative
vote of the greater of (A) a majority of the Continuing Directors who were
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members of the Board of Directors at the time of such nomination or election or
(B) at lease three (3) Continuing Directors.
5.7. Notice of Termination. The Company may effect a termination of this
Agreement pursuant to the provisions of this Section 5 upon giving ninety (90)
days' written notice to the Employee of such termination. The Employee may
effect a termination of this Agreement pursuant to the provisions of this
Section 5 upon giving ninety (90) days' written notice to the Company of such
termination.
5.8. Limitation on Termination Benefits. No payments by the Company to or
for the benefit of the Employee under this Agreement or any other agreement or
plan pursuant to which he is entitled to receive payments or benefit shall be
non-deductible to the Company by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended, (the "Code") or any successor
provision relating to parachute payments. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G, any such payments exceed the amount which
can be deducted by the Company, such payments shall be reduced to the maximum
amount which can be deducted by the Company. To the extent that payments
exceeding such maximum deductible amount have been made to or for the benefit of
the Employee, such excess payments shall be refunded to the Company with
interest thereon at the applicable Federal Rate determined under Section 1274(d)
of the Code, compounded annually, or at such other rate as may be required in
order that no such payments shall be non-deductible to the Company by reason of
the operation of said Section 280G. To the extent that there is more than one
method of reducing the payments to bring them within the limitations of said
Section 280G, the Employee shall determine which method shall be followed,
provided that if the Employee fails to make such determination within forty-five
(45) days after the Company has sent him written notice of the need for such
reduction, the Company may determine the method for such reduction in its sole
discretion.
5.9 Determination of Termination Benefits. If any dispute between the
Company and the Employee as to any of the amounts to be determined under this
Section 5, or the method of calculating such amounts, cannot be resolved by the
Company and the Employee, either party after giving three (3) days written
notice to the other, may refer the dispute to a partner in the Boston office of
a firm of independent certified public accountants selected jointly by the
Company and the Employee. The determination of such partner as to the amount to
be determined under this Section 5 and the method of calculating such amounts
shall be final and binding on both the Company and the Employee. The Company
shall bear the costs of any such determination.
6. Severance Compensation.
6.1. Termination Upon Change in Control or Termination Other Than For
Cause. In the event the Employee's employment is terminated in a Termination
Upon a Change in Control or a Termination Other Than For Cause, the Employee
shall be paid as severance compensation the Base Salary (at the rate payable at
the time of such termination) for
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the longer of (a) twelve (12) months or (b) the remaining term of this
Agreement, on the dates specified in Subsection 4.1.
Notwithstanding any provision in this Subsection 6.1 to the contrary, the
Employee may, in the Employee's sole discretion, by delivery of a notice to the
Company within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Company a lump sum severance payment by bank
cashier's check equal to the present value of the flow of cash payments that
would otherwise be paid to the Employee pursuant to this Subsection 6.1. Such
present value shall be determined as of the date of delivery of the notice of
election by the Employee and shall be based on a discount rate equal to the
interest rate on 90-day United States Treasury bills, as reported in the Wall
Street Journal, or similar publication, on the date of delivery of the election
notice. If the Employee elects to receive a lump sum severance payment, the
Company shall make such payment to the Employee within ten (10) days following
the date on which the Employee notifies the Company of the Employee's election.
In addition to the severance payment payable under this Subsection 6.1, the
Employee shall be entitled to an accelerated vesting of any awards granted to
the Employee under the Company's Incentive Stock Plan.
6.2. Termination Upon Any Other Event. In the event of a Voluntary
Termination, Termination For Cause, termination by reason of the Employee's
disability pursuant to Subsection 5.5 or termination by reason of the Employee's
death pursuant to Subsection 5.6, the Employee or his estate shall not be paid
any severance compensation.
7. Obligations Contingent on Performance.
The obligations of the Company under this Agreement, including its
obligation to pay the compensation provided for herein, shall be contingent upon
the Employee's performance of his obligations under this Agreement.
8. Confidentiality.
The Employee agrees to hold in strict confidence all information concerning
any matters affecting or relating to the business of the Company, including
without limiting the generality of the foregoing its manner of operation, plans,
protocols, processes, computer programs, tenant lists, client lists, marketing
information and analysis, or other data, without regard to whether all of the
foregoing matters will be deemed confidential or material. The Employee agrees
that he will not, directly or indirectly, use any such information for the
benefit of others than the Company or disclose or communicate any of such
information in any manner whatsoever other than to the directors, officers,
employees, agents and representatives of the Company who need to know such
information, who shall be informed by the Employee of the confidential nature of
such information and directed by the Employee to treat such information
confidentially. Upon the Company's request, the Employee shall return all
information furnished to him related to the business of the Company.
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The above limitations on use and disclosure shall not apply to information
which the Employee can demonstrate: (a) was known to the Employee before joining
the Company and was not contributed to the Company by the Employee; (b) is
learned by the Employee from a third party entitled to disclose it; or (c)
becomes known publicly other than through the Employee. The parties hereto
stipulate that all such information is material and confidential and gravely
affects the effective and successful conduct of the business of the Company and
the Company's good will, and that any breach of the terms of this Section 8
shall be a material breach of this Agreement. The terms of this Section 8 shall
remain in effect during the term of this Agreement and for a period of two (2)
years thereafter.
9. Use of Proprietary Information.
The Employee recognizes that the Company possesses a proprietary interest
in all of the information described in Section 8 and has the exclusive right and
privilege to use, protect by copyright, patent or trademark, manufacture or
otherwise exploit the processes, ideas and concepts described therein to the
exclusion of the Employee, except as otherwise agreed between the Company and
the Employee in writing. The Employee expressly agrees that any products,
inventions, discoveries or improvements made by the Employee, his agents or
affiliates, during the term of this Agreement, based on or arising out of the
information described in Section 8 shall be the property of and inure to the
exclusive benefit of the Company. The Employee further agrees that any and all
products, inventions, discoveries or improvements developed by the Employee
(whether or not able to be protected by copyright, patent or trademark) during
the course of his employment, or involving the use of the Company's time,
materials or other resources, shall be promptly disclosed to the Company and
shall become the exclusive property of the Company.
10. Non-Competition Agreement.
10.1. Non-Competition. The Employee agrees that, during the term of this
Agreement and for a period of one (1) year thereafter, he shall not, without the
prior written consent of the Company, directly or indirectly, own, manage,
operate, control, be connected with as an officer, employee, partner, consultant
or otherwise, or otherwise engage or participate in, except as an employee of
the Company, or any corporation directly or indirectly controlled by it, any
corporation or other business entity engaged in providing management services to
the orthodontic industry, except his orthodontic consulting and seminar business
referred to in Section 3 hereof. Notwithstanding the foregoing, the ownership by
the Employee of less than two percent (2%) of any class of the outstanding
capital stock of any corporation conducting a business competitive with the
Company which is regularly traded on a national securities exchange or an
over-the-counter market shall not be a violation of the foregoing covenant.
The Employee hereby acknowledges and agrees that the provisions set forth
in this Subsection 10.1 constitute a reasonable restriction on his ability to
compete with the Company.
10.2. Non-Solicitation. During the term of this Agreement and for a period
of one (1) year thereafter, the Employee shall not contact or solicit, directly
or indirectly, any customer, client, affiliate orthodontist or orthodontic
entity, tenant or account whose identity the Employee
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obtained through association with the Company, regardless of the geographical
location of such customer, client, affiliate orthodontist or orthodontic entity,
tenant or account, nor shall the Employee, directly or indirectly, entice or
induce, or attempt to entice or induce, any Employee of the Company to leave
such employ, nor shall the Employee employ any such person in any business
similar to or in competition with that of the Company during the term of this
Agreement and for a period of one (1) year thereafter. The Employee hereby
acknowledges and agrees that the provisions set forth in this Subsection 10.2
constitute a reasonable restriction on his ability to compete with the Company.
10.3. Savings Provision. The parties hereto agree that, in the event a
court of competent jurisdiction shall determine that the geographical or
durational elements of this covenant are unenforceable, such determination shall
not render the entire covenant unenforceable. Rather, the excessive aspects of
the covenant shall be reduced to the threshold which is enforceable, and the
remaining aspects shall not be affected thereby.
10.4. Equitable Relief. The Employee acknowledges that the extent of
damages to the Company from a breach of Sections 8, 9 and 10 of this Agreement
would not be readily quantifiable or ascertainable, that monetary damages would
be inadequate to make the Company whole in case of such a breach, and that there
is not and would not be an adequate remedy at law for such a breach. Therefore,
the Employee specifically agrees that the Company is entitled to injunctive or
other equitable relief from a breach of Sections 8, 9 and 10 of this Agreement,
and hereby waives and covenants not to assert against a prayer for such relief
that there exists an adequate remedy at law, in monetary damages or otherwise.
11. Entire Agreement.
This Agreement contains the complete agreement concerning the employment
arrangement between the parties and shall, as of the effective date, supersede
all other agreements or arrangements between the parties with regard to the
subject matter hereof.
12. Binding Agreement.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
assigns. The obligations of the Company under this Agreement shall not be
terminated by reason of any liquidation, dissolution, bankruptcy, cessation of
business or similar event relating to the Company. This Agreement shall not be
terminated by reason of any merger, consolidation or reorganization of the
Company, but shall be binding upon and inure to the benefit of the surviving or
resulting entity.
13. Modification.
No waiver or modification of this Agreement or of any covenant, condition
or limitation herein contained shall be valid unless in writing and duly
executed by the party to be charged therewith and no evidence of any waiver or
modification shall be offered or received in evidence of any proceeding,
arbitration or litigation between the parties hereto arising out of or affecting
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this Agreement, or the rights or obligations of the parties thereunder, unless
such waiver or modification is in writing, duly executed as aforesaid.
14. Severability.
All agreements and covenants contained herein are severable, and in the
event any of them shall be held to be invalid or unenforceable by any court of
competent jurisdiction, this Agreement shall be interpreted as if such invalid
agreements or warrants were not contained herein.
15. Manner of Giving Notice
All notices, requests and demands to or upon the respective parties hereto
shall be sent by hand, certified mail, overnight air courier service or
telecopier (if within a reasonable time a permanent copy is given by any of the
other methods described above), in each case with all applicable charges paid or
otherwise provided for, addressed as follows or to such other address as may
hereafter be designated in writing by the respective parties hereto:
To Company:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
To Employee:
F. V. "Sonny" Elliott
2415 Eagle Rock
Houston, TX 77080
Telephone: (703) 464 - 2019
Facsimile: (703)
Such notices, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
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16. Waiver.
If either party should waive any breach of any provision of this
Agreement, such party shall not thereby be deemed to have waived any preceding
or succeeding breach of the same or any other provision of this Agreement.
17. Remedies.
In the event of a breach of this Agreement, the non-breaching party will be
entitled to such legal and equitable relief as may be provided by law, and shall
further be entitled to recover all costs and expenses, including reasonable
attorneys' fees, incurred in enforcing the non-breaching party's rights
hereunder.
18. Headings.
The headings have been inserted for convenience only and shall not be
deemed to limit or otherwise affect any of the provisions of this Agreement.
19. Choice of Law.
It is the intention of the parties hereto that this Agreement and the
performance hereunder be construed in accordance with, under and pursuant to the
laws of the State of [Delaware] without regard to the jurisdiction in which any
action or special proceeding may be instituted.
20. Counterparts.
This Agreement may be executed in two (2) counterparts, each of which shall
be deemed an original, and both of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first stated above.
COMPANY:
OMEGA ORTHODONTICS, INC.
By:/s/Robert J. Schulhof
----------------------------
Name: Robert J. Schulhof
Title: President
EMPLOYEE
/s/ F. V. Elliott
----------------------------
F. V. Elliott
12
Exhibit 10.24
OMEGA ORTHODONTICS INCENTIVE STOCK PLAN
I. ESTABLISHMENT OF PLAN; DEFINITIONS
1. Purpose. The purpose of the Omega Orthodontics Incentive Stock Plan is to
provide an incentive to key employees, directors and consultants to Omega
Orthodontics, Inc. (the "Corporation") who are in a position to contribute
materially to the long-term success of the Corporation, to increase their
interest in the Corporation's welfare, and to aid in attracting and retaining
employees, directors and consultants of outstanding ability.
2. Definitions. Unless the context clearly indicates otherwise, the following
terms shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(c) "Committee" shall mean a committee whose members shall, from time to
time, be appointed by the Board; provided, however, that such Committee shall at
all times consist of at least two non-employee Directors.
(d) "Consultants" shall mean individuals who provide services to the
Corporation who are not Employees or Directors.
(e) "Corporation" shall mean Omega Orthodontics, Inc., a Delaware
corporation.
(f) "Directors" shall mean those members of the Board of Directors of the
Corporation who are not Employees.
(g) "Disability" shall mean a medically determinable physical or mental
condition which causes an Employee, Director or Consultant to be unable to
engage in any substantial gainful activity and which can be expected to result
in death or to be of long-continued and indefinite duration.
(h) "Employee" shall mean any common law employee, including officers, of
the Corporation as determined under the Code and the Treasury Regulations
thereunder.
(i) "Fair Market Value" shall mean the fair market value of the Stock as
determined by the Committee on the basis of a review of the facts and
circumstances at the time.
(j) "Grantee" shall mean an Employee, Director or Consultant granted a
Stock Option or Stock Award under this Plan.
<PAGE>
(k) "Incentive Stock Option" shall mean an option granted pursuant to the
Incentive Stock Option provisions as set forth in Part II of this Plan.
(l) "Non-Qualified Stock Option" shall mean an option granted pursuant to
the Non-Qualified Stock Option provisions as set forth in Part III of this Plan.
(m) "Performance Shares" shall mean Stock which is issued pursuant to the
performance share provisions as set forth in Part VII of this Plan.
(n) "Plan" shall mean the Omega Orthodontics Incentive Stock Plan as set
forth herein and as amended from time to time.
(o) "Reload Option" shall mean an option granted pursuant to the reload
option provisions as set forth in Part IV of this Plan.
(p) "Restricted Stock" shall mean Stock which is issued pursuant to the
Restricted Stock as set forth in Part V of this Plan.
(q) "Stock" shall mean authorized but unissued shares of the Common Stock
of the Corporation or reacquired shares of the Corporation's Common Stock.
(r) "Stock Appreciation Right" shall mean a stock appreciation right
granted pursuant to the Stock Appreciation Right provisions as set forth in Part
II and III of this Plan.
(s) "Stock Award" shall mean an award of Restricted or Unrestricted Stock
or Performance Shares granted pursuant to this Plan.
(t) "Stock Option" shall mean an option granted pursuant to the Plan to
purchase shares of Stock.
(u) "Ten Percent Shareholder" shall mean an Employee who at the time a
Stock Option is granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all stock of the Corporation or of its parent or
subsidiary corporation.
(v) "Unrestricted Stock" shall mean Stock which is issued pursuant to the
Unrestricted Stock provisions as set forth in Part VI of this Plan.
3. Shares of Stock Subject to the Plan. Subject to the provisions of Paragraph 2
of Part VIII of the Plan, the Stock which may be issued or transferred pursuant
to Stock Options and Stock Awards granted under the Plan and the Stock which is
subject to outstanding but unexercised Stock Options under the Plan shall not
exceed 450,000 shares in the aggregate. If a Stock Option shall expire and
terminate for any reason, in whole or in part, without being exercised or, if
Stock Awards are forfeited because the restrictions with respect to such Stock
Awards shall not have been met or have lapsed, the number of shares of Stock
which are no longer outstanding as Stock Awards or subject to Stock Options may
again become available for the grant of Stock Awards or Stock Options. There
shall be no terms
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and conditions in a Stock Award or Stock Option which provide that the exercise
of an Incentive Stock Option reduces the number of shares of Stock for which an
outstanding Non-Qualified Stock Option may be exercised; and there shall be no
terms and conditions in a Stock Award or Stock Option which provide that the
exercise of a Non-Qualified Stock Option reduces the number of shares of Stock
for which an outstanding Incentive Stock Option may be exercised.
4. Administration of the Plan. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the terms and provisions of Stock
Option agreements, and to make all other determinations necessary or advisable
for the administration of the Plan. Any controversy or claim arising out of or
related to this Plan shall be determined unilaterally by and at the sole
discretion of the Committee.
5. Amendment or Termination. The Board may, at any time, alter, amend, suspend,
discontinue, or terminate this Plan; provided, however, that such action shall
not adversely affect the right of Grantees to Stock Awards or Stock Options
previously granted and no amendment, without the approval of the stockholders of
the Corporation, shall increase the maximum number of shares which may be
awarded under the Plan in the aggregate, materially increase the benefits
accruing to Grantees under the Plan, change the class of Employees eligible to
receive options under the Plan, or materially modify the eligibility
requirements for participation in the Plan.
6. Effective Date and Duration of the Plan. This Plan shall become effective on
January 31, 1997. This Plan shall terminate at the close of business on January
31, 2007, and no Stock Award or Stock Option may be issued or granted under the
Plan thereafter, but such termination shall not affect any Stock Award or Stock
Option theretofore issued or granted.
II. INCENTIVE STOCK OPTION PROVISIONS
1. Granting of Incentive Stock Options.
(a) Only key Employees of the Corporation shall be eligible to receive
Incentive Stock Options under the Plan. Directors and Consultants of the
Corporation who are not also Employees shall not be eligible to receive
Incentive Stock Options.
(b) The purchase price of each share of Stock subject to an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a share of the
Stock on the date the Incentive Stock Option is granted; provided, however, that
the purchase price of each share of Stock subject to an Incentive Stock Option
granted to a Ten Percent Shareholder shall not be less than 110% of the Fair
Market Value of a share of the Stock on the date the Incentive Stock Option is
granted.
(c) No Incentive Stock Option shall be exercisable more than ten years from
the date the Incentive Stock Option was granted; provided, however, that an
Incentive Stock Option granted to a Ten Percent Shareholder shall not be
exercisable more than five years from the date the Incentive Stock Option was
granted.
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(d) The Committee shall determine and designate from time to time those
Employees who are to be granted Incentive Stock Options and specify the number
of shares subject to each Incentive Stock Option.
(e) The Committee, in its sole discretion, shall determine whether any
particular Incentive Stock Option shall become exercisable in one or more
installments, specify the installment dates, and, within the limitations herein
provided, determine the total period during which the Incentive Stock Option is
exercisable. Further, the Committee may make such other provisions as may appear
generally acceptable or desirable to the Committee or necessary to qualify its
grants under the provisions of Section 422 of the Code.
(f) The Committee may grant at any time new Incentive Stock Options to an
Employee who has previously received Incentive Stock Options or other options
whether such prior Incentive Stock Options or other options are still
outstanding, have previously been exercised in whole or in part, or are canceled
in connection with the issuance of new Incentive Stock Options. The purchase
price of the new Incentive Stock Options may be established by the Committee
without regard to the existing Incentive Stock Options or other options.
(g) Notwithstanding any other provisions hereof, the aggregate fair market
value (determined at the time the option is granted) of the Stock with respect
to which Incentive Stock Options are exercisable for the first time by the
Employee during any calendar year (under all such plans of the Grantee's
employer corporation and its parent and subsidiary corporation) shall not exceed
$100,000.
2. Exercise of Incentive Stock Options. The option price of an Incentive Stock
Option shall be payable on exercise of the option (i) in cash or by check, bank
draft or postal or express money order, (ii) by the surrender of Stock then
owned by the Grantee, or (iii) partially in accordance with clause (i) and
partially in accordance with clause (ii) of this Paragraph. Shares of Stock so
surrendered in accordance with clause (ii) or (iii) shall be valued at the Fair
Market Value thereof on the date of exercise, surrender of such Stock to be
evidenced by delivery of the certificate(s) representing such shares in such
manner, and endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Committee may determine.
3. Termination of Employment.
(a) If a Grantee's employment with the Corporation is terminated other than
by Disability or death the terms of any then outstanding Incentive Stock Option
held by the Grantee shall extend for a period ending on the earlier of the date
on which such Stock Option would otherwise expire or three months after such
termination of employment, and such Stock Option shall be exercisable to the
extent it was exercisable as of such last date of employment.
(b) If a Grantee's employment with the Corporation is terminated by reason
of Disability, the term of any then outstanding Incentive Stock Option held by
the Grantee shall extend for a period ending on the earlier of the date on which
such Stock Option would otherwise expire or twelve months after such termination
of employment, and such Stock Option shall be exercisable to the extent it was
exercisable as of such last date of employment.
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(c) If a Grantee's employment with the Corporation is terminated by reason
of death, the representative of his estate or beneficiaries thereof to whom the
Stock Option has been transferred shall have the right during the period ending
on the earlier of the date on which such Stock Option would otherwise expire or
twelve months after such date of death, to exercise any then outstanding
Incentive Stock Options in whole or in part. If a Grantee dies without having
fully exercised any then outstanding Incentive Stock Options, the representative
of his estate or beneficiaries thereof to whom the Stock Option has been
transferred shall have the right to exercise such Stock Options in whole or in
part.
4. Stock Appreciation Rights
(a) Grant. Stock Appreciation Rights related to all or any portion of an
Incentive Stock Option may be granted by the Committee to any Grantee in
connection with the grant of an Incentive Stock Option or unexercised portion
thereof held by the Grantee at any time and from time to time during the term
thereof. Each Stock Appreciation Right shall be subject to such terms and
conditions not inconsistent with the provisions of this Part II as shall be
determined by the Committee and included in the agreement relating to such Stock
Appreciation Right, subject in any event, however, to the following terms and
conditions of this Section 4. Each Stock Appreciation Right may include
limitations as to the time when such Stock Appreciation Right becomes
exercisable and when it ceases to be exercisable that are more restrictive than
the limitations on the exercise of the Incentive Stock Option to which it
relates.
(b) Exercise. No Stock Appreciation Right shall be exercisable with respect
to such related Incentive Stock Option or portion thereof unless such Incentive
Stock Option or portion shall itself be exercisable at that time. A Stock
Appreciation Right shall be exercised only upon surrender of the related
Incentive Stock Option or portion thereof in respect of which the Stock
Appreciation Right is then being exercised.
(c) Amount of Payment. On exercise of a Stock Appreciation Right, a Grantee
shall be entitled to receive an amount equal to the product of (i) the amount by
which the Fair Market Value of a share of Stock on the date of exercise of the
Stock Appreciation Right exceeds the option price per share specified in the
related Incentive Stock Option and (ii) the number of shares of Stock in respect
of which the Stock Appreciation Right shall have been exercised.
(d) Form of Payment. The Committee shall have the sole discretion either
(i) to determine the form in which payment in settlement of a Stock Appreciation
Right will be made (i.e., cash, Stock or any combination thereof), or (ii) to
consent to or disapprove the election by the Grantee to receive cash in full or
partial settlement of the Stock Appreciation Right, such consent or disapproval
to be given at any time after the election to which it relates. If settlement of
a Stock Appreciation Right, or portion thereof, is to be made in the form of
Stock, the number of shares of Stock to be distributed shall be the largest
whole number obtained by dividing the cash sum otherwise distributable in
respect of such settlement by the Fair Market Value of a share of Stock on the
date of exercise of the Stock Appreciation Right. The value of fractional shares
of Stock shall be paid in cash.
(e) Effect of Exercise of Right or Related Option. If the related Incentive
Stock Option is exercised in whole or in part, then the Stock Appreciation Right
with respect to the
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<PAGE>
Stock purchased pursuant to such exercise (but not with respect to any
unpurchased Stock) shall be terminated as of the date of exercise if such Stock
Appreciation Right is not exercised on such date.
(f) Non-transferability. A Stock Appreciation Right shall not be
transferable or assignable by the Grantee other than by will or the laws of
descent and distribution, and shall be exercisable during the Grantee's lifetime
only by the Grantee.
(g) Termination of Employment. If the Grantee ceases to be an Employee of
the Corporation for any reason, each outstanding Stock Appreciation Right shall
be exercisable for such period and to such extent as the related Incentive Stock
Option or portion thereof.
III. NON-QUALIFIED STOCK OPTION PROVISIONS
1. Granting of Stock Options.
(a) Employees, Directors and Consultants shall be eligible to receive
Non-Qualified Stock Options under the Plan.
(b) The Committee shall determine and designate from time to time those
Employees, Directors and Consultants who are to be granted Non-Qualified Stock
Options and the amount subject to each Non-Qualified Stock Option.
(c) The Committee may grant at any time new Non-Qualified Stock Options to
an Employee, Director or Consultant who has previously received Non-Qualified
Stock Options or other Stock Options, whether such prior Non-Qualified Stock
Options or other Stock Options are still outstanding, have previously been
exercised in whole or in part, or are canceled in connection with the issuance
of new Non-Qualified Stock Options.
(d) The Committee shall determine the purchase price of each share of Stock
subject to a Non-Qualified Stock Option. Such price shall not be less than
[100%] of the Fair Market Value of such Stock on the date the Non-Qualified
Stock Option is granted.
(e) The Committee, in its sole discretion, shall determine whether any
particular Non-Qualified Stock Option shall become exercisable in one or more
installments, specify the installment dates, and, within the limitations herein
provided, determine the total period during which the Non-Qualified Stock Option
is exercisable. Further, the Committee may make such other provisions as may
appear generally acceptable or desirable to the Committee.
(f) No Non-Qualified Stock Option shall be exercisable more than ten years
from the date such option is granted.
2. Exercise of Stock Options. The option price of a Non-Qualified Stock
Option shall be payable on exercise of the Stock Option (i) in cash or by check,
bank draft or postal or express money order, (ii) by the surrender of Stock then
owned by the Grantee, or (iii) partially in accordance with clause (i) and
partially in accordance with clause (ii) of this Paragraph. Shares
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of Stock so surrendered in accordance with clause (ii) or (iii) shall be valued
at the Fair Market Value thereof on the date of exercise, surrender of such to
be evidenced by delivery of the certificate(s) representing such shares in such
manner, and endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Committee may determine.
3. Termination of Relationship.
(a) If a Grantee's employment with the Corporation is terminated, a
Director Grantee ceases to be a Director, or a Consultant Grantee ceases to be a
Consultant, other than by reason of Disability or death, the terms of any then
outstanding Non-Qualified Stock Option held by the Grantee shall extend for a
period ending on the earlier of the date established by the Committee at the
time of grant or three months after the Grantee's last date of employment or
cessation of being a Director or Consultant, and such Stock Option shall be
exercisable to the extent it was exercisable as of the date of termination of
employment or cessation of being a Director or Consultant.
(b) If a Grantee's employment is terminated by reason of Disability, a
Director Grantee ceases to be a Director by reason of Disability or a Consultant
Grantee ceases to be a Consultant by reason of Disability, the term of any then
outstanding Non-Qualified Stock Option held by the Grantee shall extend for a
period ending on the earlier of the date on which such Stock Option would
otherwise expire or twelve months after the Grantee's last date of employment or
cessation of being a Director or Consultant, and such Stock Option shall be
exercisable to the extent it was exercisable as of such last date of employment
or cessation of being a Director or Consultant.
(c) If a Grantee's employment is terminated by reason of death, a Director
Grantee ceases to be a Director by reason of death or a Consultant Grantee
ceases to be a Consultant by reason of death, the representative of his estate
or beneficiaries thereof to whom the Stock Option has been transferred shall
have the right during the period ending on the earlier of the date on which such
Stock Option would otherwise expire or twelve months following his death to
exercise any then outstanding Non-Qualified Stock Options in whole or in part.
If a Grantee dies without having fully exercised any then outstanding
Non-Qualified Stock Options, the representative of his estate or beneficiaries
thereof to whom the Stock Option has been transferred shall have the right to
exercise such Stock Options in whole or in part.
4. Stock Appreciation Rights
(a) Grant. Stock Appreciation Rights related to all or any portion of a
Non-Qualified Stock Option may be granted by the Committee to any Grantee in
connection with the grant of a Non-Qualified Stock Option or unexercised portion
thereof held by the Grantee at any time and from time to time during the term
thereof. Each Stock Appreciation Right shall be subject to such terms and
conditions not inconsistent with the provisions of this Part III as shall be
determined by the Committee and included in the agreement relating to such Stock
Appreciation Right, subject in any event, however, to the following terms and
conditions of this Section 4. Each Stock Appreciation Right may include
limitations as to the time when such Stock Appreciation Right becomes
exercisable and when it ceases to be exercisable that are more
7
<PAGE>
restrictive than the limitations on the exercise of the Non-Qualified Stock
Option to which it relates.
(b) Exercise. No Stock Appreciation Right shall be exercisable with respect
to such related Non-Qualified Stock Option or portion thereof unless such
Non-Qualified Stock Option or portion shall itself be exercisable at that time.
A Stock Appreciation Right shall be exercised only upon surrender of the related
Non-Qualified Stock Option or portion thereof in respect of which the Stock
Appreciation Right is then being exercised.
(c) Amount of Payment. On exercise of a Stock Appreciation Right, a Grantee
shall be entitled to receive an amount equal to the product of (i) the amount by
which the Fair Market Value of a share of Stock on the date of exercise of the
Stock Appreciation Right exceeds the option price per share specified in the
related Non-Qualified Stock Option and (ii) the number of shares of Stock in
respect of which the Stock Appreciation Right shall have been exercised.
(d) Form of Payment. The Committee shall have the sole discretion either
(i) to determine the form in which payment in settlement of a Stock Appreciation
Right will be made (i.e., cash, Stock or any combination thereof), or (ii) to
consent to or disapprove the election by the Grantee to receive cash in full or
partial settlement of the Stock Appreciation Right, such consent or disapproval
to be given at any time after the election to which it relates. If settlement of
a Stock Appreciation Right, or portion thereof, is to be made in the form of
Stock, the number of shares of Stock to be distributed shall be the largest
whole number obtained by dividing the cash sum otherwise distributable in
respect of such settlement by the Fair Market Value of a share of Stock on the
date of exercise of the Stock Appreciation Right. The value of fractional shares
shall be paid in cash.
(e) Effect of Exercise of Right or Related Option. If the related
Non-Qualified Stock Option is exercised in whole or in part, then the Stock
Appreciation Right with respect to the Stock purchased pursuant to such exercise
(but not with respect to any unpurchased Stock) shall be terminated as of the
date of exercise if such Stock Appreciation Right is not exercised on such date.
(f) Non-transferability. A Stock Appreciation Right shall not be
transferable or assignable by the Grantee other than by will or the laws of
descent and distribution, and shall be exercisable during the Grantee's lifetime
only by the Grantee.
(g) Termination of Employment. If the Grantee ceases to be an Employee,
Director or Consultant of the Corporation for any reason, each outstanding Stock
Appreciation Right shall be exercisable for such period and to such extent as
the related Non-Qualified Stock Option or portion thereof.
IV. RELOAD OPTIONS
1. Grant of Reload Options.
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(a) Employees, Directors and Consultants shall be eligible to receive
Reload Options under the Plan.
(b) Concurrently with the award of Incentive Stock Options or Non-Qualified
Stock Options, the Committee may grant Reload Options to purchase Stock. The
number of Reload Options shall, at the discretion of the Committee, equal the
number of shares of Stock used to exercise the Incentive Stock Options or
Non-Qualified Stock Options and the number of shares of Stock used to satisfy
any tax withholding requirement applicable to the exercise of the underlying
Stock Options.
(c) The grant of a Reload Option shall become effective upon the exercise
of the underlying Incentive Stock Options or Non-Qualified Stock Options.
(d) Reload Options are not intended to qualify as incentive stock options
pursuant to Section 422 of the Code.
(e) The purchase price of each share of Stock subject to a Reload Option
shall be the Fair Market Value of a share of the Stock on the date the Reload
Option becomes effective.
(f) The term of a Reload Option shall be equal to the remaining term of the
underlying Incentive Stock Option or Non-Qualified Stock Option.
(g) The terms and conditions of a Reload Option shall be same as the
underlying Incentive Stock Option or Non-Qualified Stock Option.
2. Exercise of Reload Options. The option price of a Reload Option shall be
payable on exercise of the Stock Option (i) in cash or by check, bank draft or
postal or express money order, (ii) by the surrender of Stock then owned by the
Grantee, or (iii) partially in accordance with clause (i) and partially in
accordance with clause (ii) of this Paragraph. Shares of Stock so surrendered in
accordance with clause (ii) or (iii) shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such to be evidenced by delivery
of the certificate(s) representing such shares in such manner, and endorsed in
such form, or accompanied by stock powers endorsed in such form, as the
Committee may determine.
3. Termination of Relationship.
(a) If a Grantee's employment with the Corporation is terminated, a
Director Grantee ceases to be a Director, or a Consultant Grantee ceases to be a
Consultant other than by reason of Disability or death, the terms of any then
outstanding Reload Option held by the Grantee shall extend for a period ending
on the earlier of the date established by the Committee at the time of grant or
three months after the Grantee's last date of employment or cessation of being a
Director or Consultant, and such Stock Option shall be exercisable to the extent
it was exercisable as of the date of termination of employment or cessation of
being a Director or Consultant.
(b) If a Grantee's employment is terminated by reason of Disability, a
Director Grantee ceases to be a Director by reason of Disability or a Consultant
Grantee ceases to be a Consultant by reason of Disability, the term of any then
outstanding Non-Qualified Stock Option
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held by the Grantee shall extend for a period ending on the earlier of the date
on which such Stock Option would otherwise expire or twelve months after the
Grantee's last date of employment or cessation of being a Director or
Consultant, and such Stock Option shall be exercisable to the extent it was
exercisable as of such last date of employment or cessation of being a Director
or Consultant.
(c) If a Grantee's employment is terminated by reason of death, a Director
Grantee ceases to be a Director by reason of death or a Consultant Grantee
ceases to be a Consultant by reason of death, the representative of his estate
or beneficiaries thereof to whom the Stock Option has been transferred shall
have the right during the period ending on the earlier of the date on which such
Stock Option would otherwise expire or twelve months following his death to
exercise any then outstanding Non-Qualified Stock Options in whole or in part.
If a Grantee dies without having fully exercised any then outstanding
Non-Qualified Stock Options, the representative of his estate or beneficiaries
thereof to whom the Stock Option has been transferred shall have the right to
exercise such Stock Options in whole or in part.
V. RESTRICTED STOCK AWARDS
1. Grant of Restricted Stock.
(a) Employees, Directors and Consultants shall be eligible to receive
grants of Restricted Stock under the Plan.
(b) The Committee shall determine and designate from time to time those
Employees, Directors and Consultants who are to be granted Restricted Stock and
the number of shares of Stock subject to such Stock Award.
(c) The Committee, in its sole discretion, shall make such terms and
conditions applicable to the grant of Restricted Stock as may appear generally
acceptable or desirable to the Committee.
2. Termination of Relationship.
(a) If a Grantee's employment with the Corporation, a Director Grantee
ceases to be a Director, or a Consultant Grantee ceases to be a Consultant,
prior to the lapse of any restrictions applicable to the Restricted Stock such
Stock shall be forfeited and the Grantee shall return the certificates
representing such Stock to the Corporation.
(b) If the restrictions applicable to a grant of Restricted Stock shall
lapse, the Grantee shall hold such Stock free and clear of all such restrictions
except as otherwise provided in the Plan.
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<PAGE>
VI. UNRESTRICTED STOCK AWARDS
1. Grant of Unrestricted Stock.
(a) Employees, Directors and Consultants shall be eligible to receive
grants of Unrestricted Stock under the Plan.
(b) The Committee shall determine and designate from time to time those
Employees, Directors and Consultants who are to be granted Unrestricted Stock
and number of shares of Stock subject to such Stock Award.
2. Issuance of Stock. The Grantee shall hold Stock issued pursuant to an
Unrestricted Stock award free and clear of all restrictions except as otherwise
provided in the Plan.
VII. PERFORMANCE SHARES
1. Grant of Performance Shares.
(a) Employees, Directors and Consultants shall be eligible to receive
grants of Performance Shares under the Plan.
(b) The Committee shall determine and designate from time to time those
Employees, Directors and Consultants who are to be granted Performance Shares
and the number of shares of Stock subject to such Stock Award.
(c) The Committee, in its sole discretion, shall make such terms and
conditions applicable to the grant of Performance Shares as may appear generally
acceptable or desirable to the Committee.
2. Issuance of Stock. Upon the satisfaction of the terms and conditions
applicable to the Performance Shares, the Grantee shall hold Stock issued
pursuant to the Performance Share award free and clear of all restrictions
except as otherwise provided in the Plan.
VIII. GENERAL PROVISIONS
1. Substitution of Options. In the event of a corporate merger or consolidation,
or the acquisition by the Corporation of property or stock of an acquired
corporation or any reorganization or other transaction qualifying under Section
424 of the Code, the Committee may, in accordance with the provisions of that
Section, substitute Stock Options, Stock Awards and Stock Appreciation Rights
under this Plan for Stock Options, Stock Awards and Stock Appreciation Rights
under the plan of the acquired corporation provided (i) the excess of the
aggregate fair market value of the shares of Stock subject to Stock Option
immediately after the substitution over the aggregate option price of such Stock
is not more than the similar excess immediately before such substitution and
(ii) the new Stock Option does not give the Grantee additional benefits,
including any extension of the exercise period.
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2. Adjustment Provisions.
(a) In the event that a dividend shall be declared upon the Stock payable
in shares of the Corporation's common stock, the number of shares of Stock then
subject to any Stock Option or Stock Award outstanding under the Plan and the
number of shares reserved for the grant of Stock Options or Stock Awards
pursuant to the Plan shall be adjusted by adding to each such share the number
of shares which would be distributable in respect thereof if such shares had
been outstanding on the date fixed for determining the shareholders of the
Corporation entitled to receive such share dividend.
(b) If the shares of Stock outstanding are changed into or exchanged for a
different number or class or other securities of the Corporation or of another
corporation, whether through split-up, merger, consolidation, reorganization,
reclassification or recapitalization then there shall be substituted for each
share of Stock subject to any such Stock Option or Stock Award and for each
share of Stock reserved for the grant of Stock Options or Stock Awards pursuant
to the Plan the number and kind of shares or other securities into which each
outstanding share of Stock shall have been so changed or for which each share
shall have been exchanged.
(c) In the event there shall be any change, other than as specified above
in this Section 2, in the number or kind of outstanding shares of Stock or of
any shares or other securities into which such shares shall have been changed or
for which they shall have been exchanged, then if the Board shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number or kind of shares theretofore reserved for the grant of Stock Options or
Stock Awards pursuant to the Plan and of the shares then subject to Stock
Options or Stock Awards, such adjustment shall be made by the Board and shall be
effective and binding for all purposes of the Plan and of each Stock Option and
Stock Award outstanding thereunder.
(d) Each Stock Appreciation Right outstanding at the time of any adjustment
pursuant to this Section 2 and the number of outstanding Stock Appreciation
Rights, shall be adjusted, changed or exchanged in the same manner as related
Stock Options.
(e) In the case of any such substitution or adjustment as provided for in
this Section 2, the option price set forth in each outstanding Stock Option for
each share covered thereby prior to such substitution or adjustment will be the
option price for all shares or other securities which shall have been
substituted for such share or to which such share shall have been adjusted
pursuant to this Section 2, and the price per share shall be adjusted
accordingly.
(f) No adjustment or substitution provided for in this Section 2 shall
require the Corporation to sell a fractional share, and the total substitution
or adjustment with respect to each outstanding Stock Option shall be limited
accordingly.
(g) Upon any adjustment made pursuant to this Section 2 the Corporation
will, upon request, deliver to the Grantee a certificate setting forth the
option price thereafter in effect and the number and kind of shares or other
securities thereafter purchasable on the exercise of such Stock Option.
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3. General.
(a) Each Stock Option, Stock Award and Stock Appreciation Right shall be
evidenced by a written instrument containing such terms and conditions, not
inconsistent with this Plan, as the Committee shall approve.
(b) The granting of a Stock Option, Stock Award or Stock Appreciation Right
in any year shall not give the Grantee any right to similar grants in future
years or any right to be retained in the employ of the Corporation, and all
Employees shall remain subject to discharge to the same extent as if the Plan
were not in effect.
(c) No Employee, Director or Consultant and no beneficiary or other person
claiming under or through him, shall have any right, title or interest by reason
of any Stock Option or any Stock Award to any particular assets of the
Corporation, or any shares of Stock allocated or reserved for the purposes of
the Plan or subject to any Stock Option or any Stock Award except as set forth
herein. The Corporation shall not be required to establish any fund or make any
other segregation of assets to assure the payment of any Stock Option or Stock
Award.
(d) No right under the Plan shall be subject to anticipation, sale,
assignment, pledge, encumbrance, or charge except by will or the laws of descent
and distribution, and a Stock Option shall be exercisable during the Grantee's
lifetime only by the Grantee or his conservator.
(e) Notwithstanding any other provision of this Plan or agreements made
pursuant thereto, the Corporation's obligation to issue or deliver any
certificate or certificates for shares of Stock under a Stock Option or Stock
Award, and the transferability of Stock acquired by exercise of a Stock Option
or grant of a Stock Award, shall be subject to all of the following conditions:
(i) Any registration or other qualification of such shares under any
state or federal law or regulation, or the maintaining in effect of any
such registration or other qualification which the Board shall, in its
absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(ii) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency which the Board shall, in its absolute
discretion upon the advice of counsel, determine to be necessary or
advisable.
(f) All payments to Grantees or to their legal representatives shall be
subject to any applicable tax, community property, or other statutes or
regulations of the United States or of any state having jurisdiction thereof.
The Grantee may be required to pay to the Corporation the amount of any
withholding taxes which the Corporation is required to withhold with respect to
a Stock Option or its exercise or a Stock Award. In the event that such payment
is not made when due, the Corporation shall have the right to deduct, to the
extent permitted by law, from any payment of any kind otherwise due to such
person all or part of the amount required to be withheld.
(g) In the case of a grant of a Stock Option or Stock Award to any Employee
of a subsidiary of the Corporation, the Corporation may, if the Committee so
directs, issue or transfer
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the shares, if any, covered by the Stock Option or Stock Award to the
subsidiary, for such lawful consideration as the Committee may specify, upon the
condition or understanding that the subsidiary will transfer the shares to the
Employee in accordance with the terms of the Stock Option or Stock Award
specified by the Committee pursuant to the provisions of the Plan. For purposes
of this Section, a subsidiary shall mean any subsidiary corporation of the
Corporation as defined in Section 424 of the Code.
(h) A Grantee entitled to Stock as a result of the exercise of a Stock
Option or grant of a Stock Award shall not be deemed for any purpose to be, or
have rights as, a shareholder of the Corporation by virtue of such exercise,
except to the extent a stock certificate is issued therefor and then only from
the date such certificate is issued. No adjustments shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such stock certificate is issued. The Corporation shall issue any stock
certificates required to be issued in connection with the exercise of a Stock
Option with reasonable promptness after such exercise.
(i) The grant or exercise of Stock Options granted under the Plan or the
grant of a Stock Award under the Plan shall be subject to, and shall in all
respects comply with, applicable law relating to such grant or exercise, or to
the number of shares of Stock which may be beneficially owned or held by any
Grantee.
14
Exhibit 10.25(a)
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION
The undersigned (the "Purchaser") hereby offers and agrees to purchase from
OMEGA Orthodontics, Inc., a Delaware corporation (the "Company"), the dollar
principal amount of 15% Senior Notes ("Notes") due September 30, 1997 of the
Company indicated on the Signature Page at the end of this Agreement. Notes
subscribed for shall be purchased for 100% of the principal amount in cash in
the form of a personal check of the undersigned made payable to "OMEGA
Orthodontics, Inc.", delivered to the Company along with completed and executed
Signature Pages for OMEGA Orthodontics, Inc., the Subscription Agreement and a
completed and signed Investor Questionnaire. The minimum investment in the
Company is Fifty Thousand Dollars ($50,000.00).
2. ACKNOWLEDGEMENT
The Purchaser hereby acknowledges receipt of a copy of the Confidential
Private Placement Memorandum dated as of September 4, 1996 (the "Memorandum")
concerning the Company and offering of the Notes. Unless otherwise stated, every
capitalized term used herein will have the meaning for purposes hereof assigned
to such term in the Memorandum or the Notes.
3. ACCEPTANCE
The Purchaser understands that this Agreement represents one of a limited
number of subscriptions for the Notes of the Company being presented to
individuals or entities that comply with the requirements of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933 (the
"Securities Act"), by the Company. The Purchaser further understands and agrees
that this Agreement may be accepted or rejected by the Company in whole or in
part, in the sole and absolute discretion of the Company, and if accepted, the
Notes purchased pursuant hereto and the "Shares" (as defined below) will be
issued only in the name of the Purchaser. The Purchaser hereby acknowledges and
agrees that this Agreement and any documents submitted herewith shall survive
(i) changes in the Memorandum which are not material; (ii) death or disability
of the Purchaser; and (iii) the acceptance of this Agreement by the Company. The
Purchaser acknowledges that the Company is relying upon the representations and
warranties of the Purchaser set forth herein and in the accompanying Investor
Questionnaire and agrees to notify the Company immediately upon the occurrence
of any circumstance or event which could affect the accuracy or completeness of
such representations and warranties.
4. REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is relying solely upon the Memorandum, the Appendices
thereto, and independent investigations made by him or his representatives in
making his decision to purchase the Notes described herein. The Purchaser has
not been furnished any sales literature or offering other than the Memorandum
and the information referred to therein.
(b) The Purchaser understands that the Notes and Shares have not been
registered under the Securities Act or any state securities acts, in reliance on
exemptions for private offerings under the Securities Act and such state acts.
<PAGE>
(c) The Notes for which the Purchaser hereby subscribes and the Shares to
be issued to the Purchaser are being acquired solely for his own account, for
investment, and are not being purchased with a view to or for the resale,
distribution, subdivision or fractionalization thereof; he has no present plans
to enter into any such contract, undertaking, agreement or arrangement. In order
to induce the Company to issue and sell the Notes subscribed for hereby to the
Purchaser, it is agreed that the Company will have no obligation to recognize
the ownership, beneficial or otherwise, of such Notes and Shares by anyone but
the Purchaser.
(d) The Purchaser has received, completed and returned to the Company the
Investor Questionnaire relating to his general ability to bear the risks of an
investment in the Company and his suitability as an investor in a private
offering, and the Purchaser hereby affirms the correctness of his answers in
such Questionnaire.
(e) The Purchaser acknowledges and is aware that the Company has minimal
assets and operating history and that the Notes are speculative investments.
(f) The Purchaser acknowledges and is aware that there are substantial
restrictions on the transferability of the Notes and Shares; the Notes and
Shares will not be, and investors in the Company have no rights (other than to
the limited extent set forth below) to require that the Notes and Shares be,
registered under the Securities Act; there will be no public market for the
Notes and Shares; the Purchaser will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act with respect to the resale of the Notes and will be able to
avail himself of the provisions of such Rule 144 with respect to the resale of
the Shares only under the circumstances set forth thereunder; and accordingly,
that he may have to hold the Notes and Shares indefinitely and that it may not
be possible for him to liquidate his investment in the Company.
(g) The Purchaser (i) has adequate means of providing for his current needs
and possible personal contingencies, and he has no need for liquidity of his
investment in the Company; (ii) has a net worth sufficient to bear the risk of
losing his entire investment; (iii) can bear the economic risk of losing his
entire investment herein; and (iv) does not have an overall commitment to
non-readily marketable investments which is disproportionate to his net worth
and the investment subscribed for herein will not cause such overall commitment
to become excessive.
(h) If the Purchaser is an individual, he warrants that he is over
twenty-one (21) years of age; and if the Purchaser is a corporation, trust or
partnership the Purchaser warrants that it is authorized and otherwise duly
qualified to hold investments in the Company.
<PAGE>
5. INDEMNIFICATION
The Purchaser hereby indemnifies the Company and the Members of the Board
of Directors and the officers of the Company and all of their affiliates, agents
and controlling persons, and each of them, and agrees to hold them, and each of
them, harmless from and against any and all loss, damage, claim, liability or
expense (including reasonable attorneys' fees and expenses and costs of
investigation), which they or any of them may sustain or incur by reason of, or
in connection with any misrepresentation or breach of any warranty, agreement or
covenant made or undertaken in this Agreement, any Investor Questionnaire or
otherwise in connection with the sale or distribution by the Purchaser of the
Notes and Shares purchased by, or otherwise issued to, the Purchaser pursuant
hereto whether or not in violation of the Securities Act or other applicable
Federal or state law, provided, however, that such party or parties who may be
seeking indemnification hereunder were acting within the reasonable scope of
their authority and did not engage in gross negligence, wilful misconduct or bad
faith. The representations and warranties contained herein shall be binding upon
the Purchaser's heirs, executors, administrators, trustees, successors, and
assigns.
6. SHARES TO BE ISSUED PURSUANT TO NOTES
To induce the Purchaser to subscribe for Notes, the Company has agreed to
issue, for no additional consideration, the number of shares (the "Shares") of
Common Stock of the Company set forth on the face of the Note to be issued to
the Purchaser hereunder. Such Shares shall be subject to the terms and
conditions set forth in this Section 6.
A. Definitions
As used in this Section, the following terms have the respective meanings
set forth below:
"Business Day" shall mean any day that is not a Saturday, Sunday or a
federal holiday.
"Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the authorized Common Stock, par value $0.01 per
share, of the Company as constituted on the date hereof, and any capital stock
into which such Common Stock may hereafter be changed, and shall also include
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof.
"Fair Market Price" of a share of Common Stock means the closing price on
the day in question, or the immediately preceding Business Day if the day in
question is not a business day on the applicable national securities exchange
Nasdaq Stock Market system on which the Common Stock is included or listed or
if, on any day in question, the Common Stock shall not be listed on any national
securities exchange or quoted on the Nasdaq Stock Market, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to herein are available for the period
required hereunder, the Fair Market Price shall be determined in good faith by
the Board of Directors of the
<PAGE>
Company, or if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors.
"Holder" shall mean the Purchaser, and any permitted transferees thereof of
all or part of the Shares.
"Initial Public Offering" shall mean the first firm commitment underwritten
public offering of Common Stock (and other securities exercisable for the
purchase of Common Stock) by the Company pursuant to an effective Registration
Statement.
"Other Shares" shall have the meaning ascribed to in Section 6(c)(1)(b)
hereof.
"Outstanding" when used with reference to Common Stock shall mean, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company, and shall include shares of Common Stock then issuable pursuant
to any other warrants, options or other purchase rights, however denominated.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock held by the Company in its treasury.
"Registrable Shares" shall have the meaning ascribed to it in Section
6(c)(1) hereof.
"Registration Expenses" shall mean expenses relating to compliance by the
Company with its obligations under Section 6(c)(4) hereof, including all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state blue sky fees and expenses, and
the expense of any special audits and other expert reports incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of personal counsel selected by the
Holder.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successor forms, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another entity), including
the prospectus, amendments and supplements to such registration statement or
prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated or deemed to be incorporated by reference in such
registration statement.
"Restricted Shares" shall mean, at any time, the Holder's Shares, and
any securities received in respect thereof, which are at such time held by the
Holder and which theretofore have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
complementary rule thereto (including without limitation Rule 144A).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning ascribed to it above in this Section 6.
B. Sale or Transfer of Shares; Legend
(a) The Shares and the Registerable Shares and shares issued in respect of
the Shares or the Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Shares and the Registrable Shares,
and shares issued in respect of the Shares and the Registrable Shares, shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred or pledged unless and until such shares
are registered under such Act or an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
C. Registration Rights
1. Incidental Registration Rights. (a) If the Company at any time proposes
for any reason to register any of its securities under the Act (other than in
connection with its Initial Public Offering or pursuant to a registration
statement on Forms S-4, S-8 or similar or successor or another form which is not
available for registering Registrable Securities for sale to the public), it
shall each such time promptly give written notice to all Holders of Registrable
Securities of its intention so to do, and, upon the written request, given
within 10 days after receipt of any such notice, of such Holder to register any
Registrable Securities, which request shall specify the number of Registrable
Securities intended to be sold or disposed of by such Holders and shall state
the intended method of disposition of such Registrable Securities by such
Holders, the Company shall use its best efforts to cause all such Registrable
Securities to be registered under the Act as required to permit the sale or
other disposition (in accordance with the intended methods thereof, as
aforesaid) by such Holders. Notwithstanding the foregoing, the Company shall
have the right to withdraw such registration statement, if so required by
prudent business judgment, provided it shall reimburse the persons who indicated
their intention to include Registrable Securities therein for the out-of-pocket
expenses reasonably incurred by such persons in connection therewith.
"Registrable Securities", for purposes of this Section 6(c), means (i) the
Shares and (ii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, any of such Shares.
<PAGE>
(b) In the event that the proposed registration by the Company is, in whole
or in part, an underwritten public offering of securities of the Company (other
than the Initial Public Offering as to which the Holder shall have no
registration rights under this Section 6(c)), any request pursuant to this
Section 6 to register may specify that the Registrable Securities are to be
included in the underwriting (i) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Registrable Securities are
being sold through underwriters under such registration; provided, however, that
if the managing underwriter determines and advises in writing that the inclusion
of all Registrable Securities proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Registrable Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of Registrable Securities and Other Shares shall be
reduced pro rata among the holders of Registrable Securities and Other Shares,
as necessary.
2. Demand Registration. At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Holder holding in the aggregate at least 25% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Holders. Such Holders shall have the right by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Holders may request in such notice of Election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
3. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 6(c) to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for at least nine
months and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement;
(c) furnish to each seller such number of copies of a summary prospectus or
other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the public sale or other disposition
of such Registrable Securities;
(d) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each
<PAGE>
such seller shall reasonably request (provided, however, that the Company shall
not be required to consent to general service of process for all purposes or
qualify to do business in any jurisdiction where it is not then qualified) and
do any and all other acts or things which may be reasonably necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities; and
(e) notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto covered by
such registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (b) of this ss.8.3, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an 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 in the light of the circumstances then existing.
4. Registration Expenses. All Registration Expenses incurred in complying
with this Section 6(c) shall be paid for by the Company.
5. Indemnification. In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Section 6(c) or other
registration or qualification thereof pursuant to Section 6(c)(3)(d) hereof, the
Company shall enter into an indemnity agreement with the sellers of Registrable
Securities in customary form relating thereto.
6. Assignment. The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may be assigned by a Holder to any
transferee or assignee of Registrable Securities upon the transfer or assignment
of all Registrable Securities held by such Holder or a minimum of 20% of shares
of such Registrable Securities; provided that the Company is notified in writing
of such transfer, the proposed transferee or assignee agrees to be bound by the
provisions of this Subscription Agreement.
7. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior understanding and agreements between them respecting
the subject matter of this Agreement.
8. GOVERNING LAW
This Agreement shall be governed, construed, and interpreted in all
respects, in accordance with the internal laws of the State of California
applicable to contracts made and to be performed wholly therein, except to the
extent that by its terms the General Corporation Law of the State of Delaware
shall, by reason of the status of the Company as a Delaware business
corporation, control, and the Purchaser hereby submits to jurisdiction and venue
of the courts located in the State of California.
9. NOTICES
<PAGE>
All notices, consents, requests, demands, offers, reports and other
communications required or permitted shall be deemed to be given when personally
delivered to the party entitled thereto, or when sent by United States mail,
certified or registered, in a sealed envelope, with postage prepaid, or by
receipted, commercial overnight courier addressed if to the Purchaser at the
respective location set below his name, and if to the Company to OMEGA
Orthodontics, Inc., 3621 Silver Spur Lane, Acton, California 93510, Attention:
Robert J. Schulhof, President.
IN WITNESS WHEREOF, the Purchaser has executed or has caused to be executed
this Subscription Agreement by execution of the following signature page as of
the date set forth therein.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR INDIVIDUAL
AND JOINT TENANT INVESTORS
Executed this _____ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Printed Name of Subscriber
Signature of Subscriber
Address of Subscriber:
Number and Street
City-State-Zip Code
Printed Name of Joint Tenant, if applicable*
Signature of Joint Tenant, if applicable Social Security No.
- ----------
* All joint tenants, including married couples, must execute this signature
page and check the following as appropriate indicating nature of tenancy: (a)
_____ Tenants in common; (b) _____ Joint tenants with right of survivorship; (c)
_____ Community property.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR CORPORATE INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: ______ (in Multiples of $5,000/minimum
investment: $50,000)
Name of corporation (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR LIMITED LIABILITY COMPANY INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of limited liability company (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR TRUST INVESTORS
Executed this 9th day of September, 1996
Dollar Amount of Notes Subscribed for: $25,000 (in Multiples of $5,000/minimum
investment: $50,000)
Name of trust (please print or type): Tucker Anthony for C. Joel Glovsky IRA
Rollover
Name of trustee (please print or type): C. Joel Glovsky
ADDRESS:
Number and Street: 44 Grey Lane
City-State-Zip Code: Lynnfield, MA 01940
BY: /s/ C. Joel Glovsky
----------------------------
Trustee's signature
BY:
Additional trustee's signature (if required by Trust
Agreement)
Taxpayer Identification No. or
Social Security No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PARTNERSHIP INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of partnership (please print or type)
Name of general partner
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Authorized signature of general partner
Print name of signer and title of signer's office
(or other capacity, as applicable)
Taxpayer Identification No:
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Approved and accepted as of the 9th day of September, 1996
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
-------------------------------
Robert J. Schulhof, President
Exhibit 10.25(b)
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION
The undersigned (the "Purchaser") hereby offers and agrees to purchase from
OMEGA Orthodontics, Inc., a Delaware corporation (the "Company"), the dollar
principal amount of 15% Senior Notes ("Notes") due September 30, 1997 of the
Company indicated on the Signature Page at the end of this Agreement. Notes
subscribed for shall be purchased for 100% of the principal amount in cash in
the form of a personal check of the undersigned made payable to "OMEGA
Orthodontics, Inc.", delivered to the Company along with completed and executed
Signature Pages for OMEGA Orthodontics, Inc., the Subscription Agreement and a
completed and signed Investor Questionnaire. The minimum investment in the
Company is Fifty Thousand Dollars ($50,000.00).
2. ACKNOWLEDGEMENT
The Purchaser hereby acknowledges receipt of a copy of the Confidential
Private Placement Memorandum dated as of September 4, 1996 (the "Memorandum")
concerning the Company and offering of the Notes. Unless otherwise stated, every
capitalized term used herein will have the meaning for purposes hereof assigned
to such term in the Memorandum or the Notes.
3. ACCEPTANCE
The Purchaser understands that this Agreement represents one of a limited
number of subscriptions for the Notes of the Company being presented to
individuals or entities that comply with the requirements of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933 (the
"Securities Act"), by the Company. The Purchaser further understands and agrees
that this Agreement may be accepted or rejected by the Company in whole or in
part, in the sole and absolute discretion of the Company, and if accepted, the
Notes purchased pursuant hereto and the "Shares" (as defined below) will be
issued only in the name of the Purchaser. The Purchaser hereby acknowledges and
agrees that this Agreement and any documents submitted herewith shall survive
(i) changes in the Memorandum which are not material; (ii) death or disability
of the Purchaser; and (iii) the acceptance of this Agreement by the Company. The
Purchaser acknowledges that the Company is relying upon the representations and
warranties of the Purchaser set forth herein and in the accompanying Investor
Questionnaire and agrees to notify the Company immediately upon the occurrence
of any circumstance or event which could affect the accuracy or completeness of
such representations and warranties.
4. REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is relying solely upon the Memorandum, the Appendices
thereto, and independent investigations made by him or his representatives in
making his decision to purchase the Notes described herein. The Purchaser has
not been furnished any sales literature or offering other than the Memorandum
and the information referred to therein.
(b) The Purchaser understands that the Notes and Shares have not been
registered under the Securities Act or any state securities acts, in reliance on
exemptions for private offerings under the Securities Act and such state acts.
<PAGE>
(c) The Notes for which the Purchaser hereby subscribes and the Shares to
be issued to the Purchaser are being acquired solely for his own account, for
investment, and are not being purchased with a view to or for the resale,
distribution, subdivision or fractionalization thereof; he has no present plans
to enter into any such contract, undertaking, agreement or arrangement. In order
to induce the Company to issue and sell the Notes subscribed for hereby to the
Purchaser, it is agreed that the Company will have no obligation to recognize
the ownership, beneficial or otherwise, of such Notes and Shares by anyone but
the Purchaser.
(d) The Purchaser has received, completed and returned to the Company the
Investor Questionnaire relating to his general ability to bear the risks of an
investment in the Company and his suitability as an investor in a private
offering, and the Purchaser hereby affirms the correctness of his answers in
such Questionnaire.
(e) The Purchaser acknowledges and is aware that the Company has minimal
assets and operating history and that the Notes are speculative investments.
(f) The Purchaser acknowledges and is aware that there are substantial
restrictions on the transferability of the Notes and Shares; the Notes and
Shares will not be, and investors in the Company have no rights (other than to
the limited extent set forth below) to require that the Notes and Shares be,
registered under the Securities Act; there will be no public market for the
Notes and Shares; the Purchaser will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act with respect to the resale of the Notes and will be able to
avail himself of the provisions of such Rule 144 with respect to the resale of
the Shares only under the circumstances set forth thereunder; and accordingly,
that he may have to hold the Notes and Shares indefinitely and that it may not
be possible for him to liquidate his investment in the Company.
(g) The Purchaser (i) has adequate means of providing for his current needs
and possible personal contingencies, and he has no need for liquidity of his
investment in the Company; (ii) has a net worth sufficient to bear the risk of
losing his entire investment; (iii) can bear the economic risk of losing his
entire investment herein; and (iv) does not have an overall commitment to
non-readily marketable investments which is disproportionate to his net worth
and the investment subscribed for herein will not cause such overall commitment
to become excessive.
(h) If the Purchaser is an individual, he warrants that he is over
twenty-one (21) years of age; and if the Purchaser is a corporation, trust or
partnership the Purchaser warrants that it is authorized and otherwise duly
qualified to hold investments in the Company.
<PAGE>
5. INDEMNIFICATION
The Purchaser hereby indemnifies the Company and the Members of the Board
of Directors and the officers of the Company and all of their affiliates, agents
and controlling persons, and each of them, and agrees to hold them, and each of
them, harmless from and against any and all loss, damage, claim, liability or
expense (including reasonable attorneys' fees and expenses and costs of
investigation), which they or any of them may sustain or incur by reason of, or
in connection with any misrepresentation or breach of any warranty, agreement or
covenant made or undertaken in this Agreement, any Investor Questionnaire or
otherwise in connection with the sale or distribution by the Purchaser of the
Notes and Shares purchased by, or otherwise issued to, the Purchaser pursuant
hereto whether or not in violation of the Securities Act or other applicable
Federal or state law, provided, however, that such party or parties who may be
seeking indemnification hereunder were acting within the reasonable scope of
their authority and did not engage in gross negligence, wilful misconduct or bad
faith. The representations and warranties contained herein shall be binding upon
the Purchaser's heirs, executors, administrators, trustees, successors, and
assigns.
6. SHARES TO BE ISSUED PURSUANT TO NOTES
To induce the Purchaser to subscribe for Notes, the Company has agreed to
issue, for no additional consideration, the number of shares (the "Shares") of
Common Stock of the Company set forth on the face of the Note to be issued to
the Purchaser hereunder. Such Shares shall be subject to the terms and
conditions set forth in this Section 6.
A. Definitions
As used in this Section, the following terms have the respective meanings
set forth below:
"Business Day" shall mean any day that is not a Saturday, Sunday or a
federal holiday.
"Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the authorized Common Stock, par value $0.01 per
share, of the Company as constituted on the date hereof, and any capital stock
into which such Common Stock may hereafter be changed, and shall also include
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof.
"Fair Market Price" of a share of Common Stock means the closing price on
the day in question, or the immediately preceding Business Day if the day in
question is not a business day on the applicable national securities exchange
Nasdaq Stock Market system on which the Common Stock is included or listed or
if, on any day in question, the Common Stock shall not be listed on any national
securities exchange or quoted on the Nasdaq Stock Market, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to herein are available for the period
required hereunder, the Fair Market Price shall be determined in good faith by
the Board of Directors of the
<PAGE>
Company, or if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors.
"Holder" shall mean the Purchaser, and any permitted transferees thereof of
all or part of the Shares.
"Initial Public Offering" shall mean the first firm commitment underwritten
public offering of Common Stock (and other securities exercisable for the
purchase of Common Stock) by the Company pursuant to an effective Registration
Statement.
"Other Shares" shall have the meaning ascribed to in Section 6(c)(1)(b)
hereof.
"Outstanding" when used with reference to Common Stock shall mean, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company, and shall include shares of Common Stock then issuable pursuant
to any other warrants, options or other purchase rights, however denominated.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock held by the Company in its treasury.
"Registrable Shares" shall have the meaning ascribed to it in Section
6(c)(1) hereof.
"Registration Expenses" shall mean expenses relating to compliance by the
Company with its obligations under Section 6(c)(4) hereof, including all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state blue sky fees and expenses, and
the expense of any special audits and other expert reports incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of personal counsel selected by the
Holder.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successor forms, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another entity), including
the prospectus, amendments and supplements to such registration statement or
prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated or deemed to be incorporated by reference in such
registration statement.
"Restricted Shares" shall mean, at any time, the Holder's Shares, and any
securities received in respect thereof, which are at such time held by the
Holder and which theretofore have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
complementary rule thereto (including without limitation Rule 144A).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning ascribed to it above in this Section 6.
B. Sale or Transfer of Shares; Legend
(a) The Shares and the Registerable Shares and shares issued in respect of
the Shares or the Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Shares and the Registrable Shares,
and shares issued in respect of the Shares and the Registrable Shares, shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred or pledged unless and until such shares are
registered under such Act or an opinion of counsel reasonably satisfactory
to the Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
C. Registration Rights
1. Incidental Registration Rights. (a) If the Company at any time proposes
for any reason to register any of its securities under the Act (other than in
connection with its Initial Public Offering or pursuant to a registration
statement on Forms S-4, S-8 or similar or successor or another form which is not
available for registering Registrable Securities for sale to the public), it
shall each such time promptly give written notice to all Holders of Registrable
Securities of its intention so to do, and, upon the written request, given
within 10 days after receipt of any such notice, of such Holder to register any
Registrable Securities, which request shall specify the number of Registrable
Securities intended to be sold or disposed of by such Holders and shall state
the intended method of disposition of such Registrable Securities by such
Holders, the Company shall use its best efforts to cause all such Registrable
Securities to be registered under the Act as required to permit the sale or
other disposition (in accordance with the intended methods thereof, as
aforesaid) by such Holders. Notwithstanding the foregoing, the Company shall
have the right to withdraw such registration statement, if so required by
prudent business judgment, provided it shall reimburse the persons who indicated
their intention to include Registrable Securities therein for the out-of-pocket
expenses reasonably incurred by such persons in connection therewith.
"Registrable Securities", for purposes of this Section 6(c), means (i) the
Shares and (ii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, any of such Shares.
<PAGE>
(b) In the event that the proposed registration by the Company is, in whole
or in part, an underwritten public offering of securities of the Company (other
than the Initial Public Offering as to which the Holder shall have no
registration rights under this Section 6(c)), any request pursuant to this
Section 6 to register may specify that the Registrable Securities are to be
included in the underwriting (i) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Registrable Securities are
being sold through underwriters under such registration; provided, however, that
if the managing underwriter determines and advises in writing that the inclusion
of all Registrable Securities proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Registrable Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of Registrable Securities and Other Shares shall be
reduced pro rata among the holders of Registrable Securities and Other Shares,
as necessary.
2. Demand Registration. At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Holder holding in the aggregate at least 25% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Holders. Such Holders shall have the right by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Holders may request in such notice of Election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
3. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 6(c) to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for at least nine
months and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement;
(c) furnish to each seller such number of copies of a summary prospectus or
other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the public sale or other disposition
of such Registrable Securities;
(d) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each
<PAGE>
such seller shall reasonably request (provided, however, that the Company shall
not be required to consent to general service of process for all purposes or
qualify to do business in any jurisdiction where it is not then qualified) and
do any and all other acts or things which may be reasonably necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities; and
(e) notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto covered by
such registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (b) of this ss.8.3, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an 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 in the light of the circumstances then existing.
4. Registration Expenses. All Registration Expenses incurred in complying
with this Section 6(c) shall be paid for by the Company.
5. Indemnification. In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Section 6(c) or other
registration or qualification thereof pursuant to Section 6(c)(3)(d) hereof, the
Company shall enter into an indemnity agreement with the sellers of Registrable
Securities in customary form relating thereto.
6. Assignment. The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may be assigned by a Holder to any
transferee or assignee of Registrable Securities upon the transfer or assignment
of all Registrable Securities held by such Holder or a minimum of 20% of shares
of such Registrable Securities; provided that the Company is notified in writing
of such transfer, the proposed transferee or assignee agrees to be bound by the
provisions of this Subscription Agreement.
7. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior understanding and agreements between them respecting
the subject matter of this Agreement.
8. GOVERNING LAW
This Agreement shall be governed, construed, and interpreted in all
respects, in accordance with the internal laws of the State of California
applicable to contracts made and to be performed wholly therein, except to the
extent that by its terms the General Corporation Law of the State of Delaware
shall, by reason of the status of the Company as a Delaware business
corporation, control, and the Purchaser hereby submits to jurisdiction and venue
of the courts located in the State of California.
9. NOTICES
<PAGE>
All notices, consents, requests, demands, offers, reports and other
communications required or permitted shall be deemed to be given when personally
delivered to the party entitled thereto, or when sent by United States mail,
certified or registered, in a sealed envelope, with postage prepaid, or by
receipted, commercial overnight courier addressed if to the Purchaser at the
respective location set below his name, and if to the Company to OMEGA
Orthodontics, Inc., 3621 Silver Spur Lane, Acton, California 93510, Attention:
Robert J. Schulhof, President.
IN WITNESS WHEREOF, the Purchaser has executed or has caused to be executed
this Subscription Agreement by execution of the following signature page as of
the date set forth therein.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR INDIVIDUAL
AND JOINT TENANT INVESTORS
Executed this _____ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________
(in Multiples of $5,000/minimum investment: $50,000)
Printed Name of Subscriber
Signature of Subscriber
Address of Subscriber:
Number and Street
City-State-Zip Code
Printed Name of Joint Tenant, if applicable*
Signature of Joint Tenant, if applicable Social Security No.
- ----------
* All joint tenants, including married couples, must execute this signature
page and check the following as appropriate indicating nature of tenancy:
(a) _____ Tenants in common; (b) _____ Joint tenants with right of survivorship;
(c) _____ Community property.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR CORPORATE INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: ______
(in Multiples of $5,000/minimum investment: $50,000)
Name of corporation (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR LIMITED LIABILITY COMPANY INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________
(in Multiples of $5,000/minimum investment: $50,000)
Name of limited liability company (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR TRUST INVESTORS
Executed this 28th day of April, 1997
Dollar Amount of Notes Subscribed for: $5,000
(in Multiples of $5,000/minimum investment: $50,000)
Name of trust (please print or type):
Tucker Anthony for C. Joel Glovsky IRA Rollover
Name of trustee (please print or type): C. Joel Glovsky
ADDRESS:
Number and Street: 44 Grey Lane
City-State-Zip Code: Lynnfield, MA 01940
BY: /s/ C. Joel Glovsky
-----------------------
Trustee's signature
BY:
Additional trustee's signature (if required by Trust
Agreement)
Taxpayer Identification No. or
Social Security No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PARTNERSHIP INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________
(in Multiples of $5,000/minimum investment: $50,000)
Name of partnership (please print or type)
Name of general partner
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Authorized signature of general partner
Print name of signer and title of signer's office
(or other capacity, as applicable)
Taxpayer Identification No:
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Approved and accepted as of the 28th day of April, 1997
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
------------------------------
Robert J. Schulhof, President
Exhibit 10.26
-------------
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION
The undersigned (the "Purchaser") hereby offers and agrees to purchase from
OMEGA Orthodontics, Inc., a Delaware corporation (the "Company"), the dollar
principal amount of 15% Senior Notes ("Notes") due September 30, 1997 of the
Company indicated on the Signature Page at the end of this Agreement. Notes
subscribed for shall be purchased for 100% of the principal amount in cash in
the form of a personal check of the undersigned made payable to "OMEGA
Orthodontics, Inc.", delivered to the Company along with completed and executed
Signature Pages for OMEGA Orthodontics, Inc., the Subscription Agreement and a
completed and signed Investor Questionnaire. The minimum investment in the
Company is Fifty Thousand Dollars ($50,000.00).
2. ACKNOWLEDGEMENT
The Purchaser hereby acknowledges receipt of a copy of the Confidential
Private Placement Memorandum dated as of September 4, 1996 (the "Memorandum")
concerning the Company and offering of the Notes. Unless otherwise stated, every
capitalized term used herein will have the meaning for purposes hereof assigned
to such term in the Memorandum or the Notes.
3. ACCEPTANCE
The Purchaser understands that this Agreement represents one of a
limited number of subscriptions for the Notes of the Company being presented to
individuals or entities that comply with the requirements of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933 (the
"Securities Act"), by the Company. The Purchaser further understands and agrees
that this Agreement may be accepted or rejected by the Company in whole or in
part, in the sole and absolute discretion of the Company, and if accepted, the
Notes purchased pursuant hereto and the "Shares" (as defined below) will be
issued only in the name of the Purchaser. The Purchaser hereby acknowledges and
agrees that this Agreement and any documents submitted herewith shall survive
(i) changes in the Memorandum which are not material; (ii) death or disability
of the Purchaser; and (iii) the acceptance of this Agreement by the Company. The
Purchaser acknowledges that the Company is relying upon the representations and
warranties of the Purchaser set forth herein and in the accompanying Investor
Questionnaire and agrees to notify the Company immediately upon the occurrence
of any circumstance or event which could affect the accuracy or completeness of
such representations and warranties.
4. REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is relying solely upon the Memorandum, the Appendices
thereto, and independent investigations made by him or his representatives in
making his decision to purchase the Notes described herein. The Purchaser has
not been furnished any sales literature or offering other than the Memorandum
and the information referred to therein.
<PAGE>
(b) The Purchaser understands that the Notes and Shares have not been
registered under the Securities Act or any state securities acts, in reliance on
exemptions for private offerings under the Securities Act and such state acts.
(c) The Notes for which the Purchaser hereby subscribes and the Shares
to be issued to the Purchaser are being acquired solely for his own account, for
investment, and are not being purchased with a view to or for the resale,
distribution, subdivision or fractionalization thereof; he has no present plans
to enter into any such contract, undertaking, agreement or arrangement. In order
to induce the Company to issue and sell the Notes subscribed for hereby to the
Purchaser, it is agreed that the Company will have no obligation to recognize
the ownership, beneficial or otherwise, of such Notes and Shares by anyone but
the Purchaser.
(d) The Purchaser has received, completed and returned to the Company
the Investor Questionnaire relating to his general ability to bear the risks of
an investment in the Company and his suitability as an investor in a private
offering, and the Purchaser hereby affirms the correctness of his answers in
such Questionnaire.
(e) The Purchaser acknowledges and is aware that the Company has
minimal assets and operating history and that the Notes are speculative
investments.
(f) The Purchaser acknowledges and is aware that there are substantial
restrictions on the transferability of the Notes and Shares; the Notes and
Shares will not be, and investors in the Company have no rights (other than to
the limited extent set forth below) to require that the Notes and Shares be,
registered under the Securities Act; there will be no public market for the
Notes and Shares; the Purchaser will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act with respect to the resale of the Notes and will be able to
avail himself of the provisions of such Rule 144 with respect to the resale of
the Shares only under the circumstances set forth thereunder; and accordingly,
that he may have to hold the Notes and Shares indefinitely and that it may not
be possible for him to liquidate his investment in the Company.
(g) The Purchaser (i) has adequate means of providing for his current
needs and possible personal contingencies, and he has no need for liquidity of
his investment in the Company; (ii) has a net worth sufficient to bear the risk
of losing his entire investment; (iii) can bear the economic risk of losing his
entire investment herein; and (iv) does not have an overall commitment to
non-readily marketable investments which is disproportionate to his net worth
and the investment subscribed for herein will not cause such overall commitment
to become excessive.
(h) If the Purchaser is an individual, he warrants that he is over
twenty-one (21) years of age; and if the Purchaser is a corporation, trust or
partnership the Purchaser warrants that it is authorized and otherwise duly
qualified to hold investments in the Company.
<PAGE>
5. INDEMNIFICATION
The Purchaser hereby indemnifies the Company and the Members of the
Board of Directors and the officers of the Company and all of their affiliates,
agents and controlling persons, and each of them, and agrees to hold them, and
each of them, harmless from and against any and all loss, damage, claim,
liability or expense (including reasonable attorneys' fees and expenses and
costs of investigation), which they or any of them may sustain or incur by
reason of, or in connection with any misrepresentation or breach of any
warranty, agreement or covenant made or undertaken in this Agreement, any
Investor Questionnaire or otherwise in connection with the sale or distribution
by the Purchaser of the Notes and Shares purchased by, or otherwise issued to,
the Purchaser pursuant hereto whether or not in violation of the Securities Act
or other applicable Federal or state law, provided, however, that such party or
parties who may be seeking indemnification hereunder were acting within the
reasonable scope of their authority and did not engage in gross negligence,
wilful misconduct or bad faith. The representations and warranties contained
herein shall be binding upon the Purchaser's heirs, executors, administrators,
trustees, successors, and assigns.
6. SHARES TO BE ISSUED PURSUANT TO NOTES
To induce the Purchaser to subscribe for Notes, the Company has agreed
to issue, for no additional consideration, the number of shares (the "Shares")
of Common Stock of the Company set forth on the face of the Note to be issued to
the Purchaser hereunder. Such Shares shall be subject to the terms and
conditions set forth in this Section 6.
A. Definitions
As used in this Section, the following terms have the respective
meanings set forth below:
"Business Day" shall mean any day that is not a Saturday, Sunday or a
federal holiday.
"Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the authorized Common Stock, par value $0.01
per share, of the Company as constituted on the date hereof, and any capital
stock into which such Common Stock may hereafter be changed, and shall also
include capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof.
"Fair Market Price" of a share of Common Stock means the closing price
on the day in question, or the immediately preceding Business Day if the day in
question is not a business day on the applicable national securities exchange
Nasdaq Stock Market system on which the Common Stock is included or listed or
if, on any day in question, the Common Stock shall not be listed on any national
securities exchange or quoted on the Nasdaq Stock Market, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to herein are available for the period
required hereunder, the Fair Market Price shall be determined in good faith by
the Board of Directors of the Company, or if such determination cannot be made,
by a nationally recognized independent investment banking firm selected by the
Board of Directors.
<PAGE>
"Holder" shall mean the Purchaser, and any permitted transferees
thereof of all or part of the Shares.
"Initial Public Offering" shall mean the first firm commitment
underwritten public offering of Common Stock (and other securities exercisable
for the purchase of Common Stock) by the Company pursuant to an effective
Registration Statement.
"Other Shares" shall have the meaning ascribed to in Section 6(c)(1)(b)
hereof.
"Outstanding" when used with reference to Common Stock shall mean, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company, and shall include shares of Common Stock then issuable
pursuant to any other warrants, options or other purchase rights, however
denominated.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Primary Shares" shall mean at any time the authorized but unissued
shares of Common Stock held by the Company in its treasury.
"Registrable Shares" shall have the meaning ascribed to it in
Section 6(c)(1) hereof.
"Registration Expenses" shall mean expenses relating to compliance by
the Company with its obligations under Section 6(c)(4) hereof, including all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state blue sky fees and expenses, and
the expense of any special audits and other expert reports incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of personal counsel selected by the
Holder.
"Registration Statement" shall mean a registration statement filed by
the Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successor forms, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another entity),
including the prospectus, amendments and supplements to such registration
statement or prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated or deemed to be incorporated by
reference in such registration statement.
"Restricted Shares" shall mean, at any time, the Holder's Shares, and
any securities received in respect thereof, which are at such time held by the
Holder and which theretofore have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or
any complementary rule thereto (including without limitation Rule 144A).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning ascribed to it above in this Section 6.
B. Sale or Transfer of Shares; Legend
(a) The Shares and the Registerable Shares and shares issued in respect
of the Shares or the Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Shares and the Registrable
Shares, and shares issued in respect of the Shares and the Registrable Shares,
shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred or pledged unless and until such shares
are registered under such Act or an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates
representing any Registrable Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act.
C. Registration Rights
1. Incidental Registration Rights. (a) If the Company at any time
proposes for any reason to register any of its securities under the Act (other
than in connection with its Initial Public Offering or pursuant to a
registration statement on Forms S-4, S-8 or similar or successor or another form
which is not available for registering Registrable Securities for sale to the
public), it shall each such time promptly give written notice to all Holders of
Registrable Securities of its intention so to do, and, upon the written request,
given within 10 days after receipt of any such notice, of such Holder to
register any Registrable Securities, which request shall specify the number of
Registrable Securities intended to be sold or disposed of by such Holders and
shall state the intended method of disposition of such Registrable Securities by
such Holders, the Company shall use its best efforts to cause all such
Registrable Securities to be registered under the Act as required to permit the
sale or other disposition (in accordance with the intended methods thereof, as
aforesaid) by such Holders. Notwithstanding the foregoing, the Company shall
have the right to withdraw such registration statement, if so required by
prudent business judgment, provided it shall reimburse the persons who indicated
their intention to include Registrable Securities therein for the out-of-pocket
expenses reasonably incurred by such persons in connection therewith.
"Registrable Securities", for purposes of this Section 6(c), means (i) the
Shares and (ii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, any of such Shares.
<PAGE>
(b) In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company
(other than the Initial Public Offering as to which the Holder shall have no
registration rights under this Section 6(c)), any request pursuant to this
Section 6 to register may specify that the Registrable Securities are to be
included in the underwriting (i) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Registrable Securities are
being sold through underwriters under such registration; provided, however, that
if the managing underwriter determines and advises in writing that the inclusion
of all Registrable Securities proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Registrable Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of Registrable Securities and Other Shares shall be
reduced pro rata among the holders of Registrable Securities and Other Shares,
as necessary.
2. Demand Registration. At any time after the Company becomes eligible
to file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Holder holding in the aggregate at least 25% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Holders. Such Holders shall have the right by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Holders may request in such notice of Election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
3. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 6(c) to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least nine months and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement;
(c) furnish to each seller such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such seller may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each such seller shall
reasonably request (provided, however, that the Company shall not be required to
consent to general service of process for all purposes or qualify to do business
in any
<PAGE>
jurisdiction where it is not then qualified) and do any and all other acts or
things which may be reasonably necessary or advisable to enable such seller to
consummate the public sale or other disposition in such jurisdictions of such
securities; and
(e) notify each seller of Registerable Securities covered by
such registration statement at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act within the appropriate period mentioned in clause (b) of this
ss.8.3, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of such seller,
prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an 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 in the light of the circumstances then existing.
4. Registration Expenses. All Registration Expenses incurred in
complying with this Section 6(c) shall be paid for by the Company.
5. Indemnification. In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Section 6(c) or other
registration or qualification thereof pursuant to Section 6(c)(3)(d) hereof, the
Company shall enter into an indemnity agreement with the sellers of Registrable
Securities in customary form relating thereto.
6. Assignment. The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may be assigned by a Holder to any
transferee or assignee of Registrable Securities upon the transfer or assignment
of all Registrable Securities held by such Holder or a minimum of 20% of shares
of such Registrable Securities; provided that the Company is notified in writing
of such transfer, the proposed transferee or assignee agrees to be bound by the
provisions of this Subscription Agreement.
7. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior understanding and agreements between them
respecting the subject matter of this Agreement.
8. GOVERNING LAW
This Agreement shall be governed, construed, and interpreted in all
respects, in accordance with the internal laws of the State of California
applicable to contracts made and to be performed wholly therein, except to the
extent that by its terms the General Corporation Law of the State of Delaware
shall, by reason of the status of the Company as a Delaware business
corporation, control, and the Purchaser hereby submits to jurisdiction and venue
of the courts located in the State of California.
9. NOTICES
All notices, consents, requests, demands, offers, reports and other
communications required or permitted shall be deemed to be given when personally
delivered to the party entitled
<PAGE>
thereto, or when sent by United States mail, certified or registered, in a
sealed envelope, with postage prepaid, or by receipted, commercial overnight
courier addressed if to the Purchaser at the respective location set below his
name, and if to the Company to OMEGA Orthodontics, Inc., 3621 Silver Spur Lane,
Acton, California 93510, Attention: Robert J. Schulhof, President.
IN WITNESS WHEREOF, the Purchaser has executed or has caused to be
executed this Subscription Agreement by execution of the following signature
page as of the date set forth therein.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR INDIVIDUAL
AND JOINT TENANT INVESTORS
Executed this 25th day of September, 1996
Dollar Amount of Notes Subscribed for: $50,000 (in Multiples of $5,000/minimum
investment: $50,000)
Printed Name of Subscriber: Dr. Dean C. Bellavia
Signature of Subscriber: /s/ Dean C. Bellavia
Address of Subscriber:
Number and Street : 44 Capen Boulevard
City-State-Zip Code: Buffalo, NY 14214
Printed Name of Joint Tenant, if applicable* Cynthia Z. Bellavia
Signature of Joint Tenant, if applicable Social Security No.
/s/ Cynthia Z. Bellavia ###-##-####
- ------------------
* All joint tenants, including married couples, must execute this signature
page and check the following as appropriate indicating nature of tenancy: (a)
_____ Tenants in common; (b) _____ Joint tenants with right of survivorship; (c)
_____ Community property.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR CORPORATE INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: ______ (in Multiples of $5,000/minimum
investment: $50,000)
Name of corporation (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR LIMITED LIABILITY COMPANY INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of limited liability company (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR TRUST INVESTORS
Executed this _____ day of ______, 1996
Dollar Amount of Notes Subscribed for: ________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of trust (please print or type):
Name of trustee (please print or type):
ADDRESS:
Number and Street:
City-State-Zip Code:
BY: _________________________
Trustee's signature
BY:
Additional trustee's signature (if required by Trust
Agreement)
Taxpayer Identification No. or
Social Security No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PARTNERSHIP INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of partnership (please print or type)
Name of general partner
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Authorized signature of general partner
Print name of signer and title of signer's office
(or other capacity, as applicable)
Taxpayer Identification No:
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Approved and accepted as of the 25th day of September, 1996
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
--------------------------------
Robert J. Schulhof, President
Exhibit 10.27(a)
AMENDED AND RESTATED CONSULTING AGREEMENT
AMENDED AND RESTATED CONSULTING AGREEMENT dated as of September 4, 1996 by
and among Omega Orthodontics, Inc. ("Omega"), C. Joel Glovsky ("Glovsky") and
The Mayflower Group, Ltd. ("Mayflower" and, together with Glovsky, the
"Consultants").
WHEREAS, the Consultants entered into a Consulting Agreement dated June 24,
1996 (the "Agreement") with The Orthodontic Management Effectiveness Group of
America, LLC ("LLC") pursuant to which the Consultants agreed to provide certain
consulting services to LLC regarding the structuring of an operating company to
be formed by LLC in exchange for the issuance of thirty percent (30%) of the
initial outstanding equity of such operating company;
WHEREAS, LLC formed Omega as the operating company and, pursuant to that
certain Asset Purchase Agreement between LLC and Omega dated as of August 31,
1996, Omega acquired LLC's orthodontic practice management business and certain
related assets (including, without limitation, all of LLC's rights, duties and
obligations under the Agreement) in exchange for 1,050,000 shares of Omega's
common stock, par value $.01 per share (the "Common Stock");
WHEREAS, pursuant to the Agreement, Omega issued 225,000 shares of Common
Stock to each of Glovsky and Mayflower (individually, the "Glovsky Shares" or
the "Mayflower Shares," as the case may be, and collectively, the "Shares") and
placed the Shares in escrow (the "Escrow") pending completion of the services
required by the Agreement;
WHEREAS, Omega and the Consultants desire to amend and restate the
Agreement in order to reflect more accurately the services required to be
rendered by each of Glovsky and Mayflower thereunder and to clarify the
conditions to the release of the Shares from the Escrow and to enter into this
Amended and Restated Consulting Agreement amending and restating the Agreement
in its entirety as provided herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. GLOVSKY SERVICES. During the term of this Amended and Restated
Consulting Agreement, Glovsky shall provide consulting services to Omega
regarding (a) the initial capital structure and initial private financing of
Omega, (b) the identification and retention of the Board of Directors, senior
management team and professional advisors for Omega, (c) the identification of
orthodontic practices as candidates for Omega's initial affiliation program, (d)
the development of Omega's affiliation program and its documentation and (e) the
initial marketing of Omega's affiliation program to orthodontic practices in the
United States and the negotiation of the documentation with potential
affiliates. In addition, Glovsky hereby agrees that, if so requested, he will
serve as the Chairman of the Board of Directors of Omega.
<PAGE>
2. RELEASE OF GLOVSKY SHARES. The Glovsky Shares shall be released from the
Escrow upon a finding of a majority of the disinterested members of the Board of
Directors of Omega that the services described in Paragraph 1 above have been
substantially completed.
3. MAYFLOWER SERVICES. During the term of this Amended and Restated
Consulting Agreement, Mayflower shall provide consulting services to Omega
regarding (a) the content, structure and form of Omega's initial business plan,
(b) the initial capital structure and initial private financing of Omega and (c)
the strategy for and structure of Omega's practice affiliation transactions.
4. RELEASE OF MAYFLOWER SHARES. The Mayflower Shares shall be released from
the Escrow upon a finding by a majority of the disinterested members of the
Board of Directors of Omega that the services described in Paragraph 3 above
have been substantially completed.
5. TERM OF AGREEMENT. This Amended and Restated Consulting Agreement shall
be effective as of the date set forth above and shall expire on the earlier to
occur of (a) the release of the Escrow of the Glovsky Shares (with respect to
Glovsky only) or the release of the Escrow of the Mayflower Shares (with respect
to Mayflower only) or (b) at the close of business on September 3, 1997.
6. INDEPENDENT CONTRACTOR. The Consultants are retained by Omega only for
the purpose and to the extent herein set forth, and the Consultants'
relationship to Omega shall, during the period of the Consultants' services
hereunder, be that of independent contractor. Accordingly, each of the
Consultants shall be responsible for the payment of all federal, state and local
income taxes, social security taxes, self-employment taxes, sales taxes,
unemployment insurance taxes and similar taxes attributable to the fees paid by
Omega to the Consultant pursuant to this Amended and Restated Consulting
Agreement. Neither Consultant shall participate in Omega's employee benefit
plans and programs, and his or its compensation shall be governed exclusively by
the terms of this Amended and Restated Consulting Agreement. No party to this
Amended and Restated Consulting Agreement and none of their respective agents,
employees, representatives, or independent contractors shall (i) be considered
an agent, employee or representative of any other party for any purpose
whatsoever; (ii) have any authority to make any agreement or commitment for any
other party or to incur liability or obligation in any other party's name or on
his or its behalf; or (iii) represent to third parties that any of them has any
right so to bind any other party hereto.
7. CONFIDENTIALITY. Neither Consultant shall, either during the period of
his consultancy with Omega or thereafter, reveal or disclose to any person
outside Omega or use to his own benefit, any proprietary and confidential
marketing technique or cost method, or any affiliated orthodontist or
orthodontic entity list of Omega or any patient list thereof or any proprietary
and confidential mailing or supplier list, whether or not made, developed and/or
conceived by such Consultant or by others in the employ of Omega. Upon the
termination of such Consultant's consultancy in any manner or for any reason,
the Consultant shall promptly surrender to Omega all copies of any of the
foregoing, together with any other documents,
2
<PAGE>
materials, data, information and equipment belonging to or relating to Omega's
business and in his possession, custody or control, and such Consultant shall
not thereafter retain or deliver to any other person, any of the foregoing or
any summary or memorandum thereof.
8. FURTHER ASSURANCES. If compliance with securities or other federal or
state laws, rules or regulations, or the rules and regulations of any self
regulatory organization or other agency or organization with jurisdiction over
one or more of the parties, requires the modification of all or any portion of
this Amended and Restated Consulting Agreement, the parties shall take promptly,
or cause to be taken promptly, whatever actions are necessary to comply with
such laws, rules or regulations, and, to the extent consistent with such laws,
and regulations, shall use reasonable efforts to preserve the original intent of
this Amended and Restated Consulting Agreement.
9. NOTICES. All notices, requests and demands to or upon the respective
parties hereto shall be sent by hand, certified mail, overnight air courier
service or telecopier (if within a reasonable time a permanent copy is given by
any of the other methods described above), in each case with all applicable
charges paid or otherwise provided for, addressed as follows or to such other
address as may hereafter be designated in writing by the respective parties
hereto:
If to Glovsky:
C. Joel Glovsky
44 Grey Lane
Lynnfield, MA 01940
Telephone: (617) 334-4712
Facsimile: (617) 334-4889
If to Mayflower
The Mayflower Group, Ltd.
393 Commonwealth Avenue
Boston, MA 02115
Telephone: (617) 267-9000
Facsimile: (617) 266-6666
If to Omega:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
Such notice, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
3
<PAGE>
10. ENTIRE AGREEMENT. This Amended and Restated Consulting Agreement
contains the entire agreement concerning the arrangement among the parties and
shall, as of the effective date, supersede all other agreements or arrangements
between the parties with regard to the subject matter hereof.
11. ASSIGNMENT. Neither Consultant may assign any of his or its rights or
obligations hereunder without the prior written consent of Omega.
12. MODIFICATION. No waiver or modification of this Amended and Restated
Consulting Agreement or of any covenant, condition or limitation herein
contained shall be valid unless in writing and duly executed by the party to be
charged therewith and no evidence of any waiver or modification shall be offered
or received in evidence of any proceeding, arbitration or litigation between the
parties hereto arising out of or affecting this Amended and Restated Consulting
Agreement, or the rights or obligations of the parties hereunder, unless such
wavier or modification is in writing, duly executed as aforesaid.
13. SEVERABILITY. All agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid or
unenforceable by any court of competent jurisdiction, this Amended and Restated
Consulting Agreement shall be interpreted as if such invalid agreements or
warrants were not contained herein.
14. COUNTERPARTS. This Amended and Restated Consulting Agreement may be
executed in one or more counterparts, each of which when executed and delivered
shall be an original, and all of which together shall constitute one instrument.
In proving this Amended and Restated Consulting Agreement, it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.
15. GOVERNING LAW. It is the intention of the parties hereto that this
Amended and Restated Consulting Agreement and the performance hereunder be
construed in accordance with, under and pursuant to the laws of the State of
Delaware without regard to the jurisdiction in which any action or special
proceeding may be instituted.
16. HEADINGS. The headings have been inserted for convenience only and
shall not be deemed to limit or otherwise affect any of the provisions of this
Amended and Restated Consulting Agreement .
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
--------------------------
Robert J. Schulhof, President
/s/ C. Joel Glovsky
--------------------------
C. Joel Glovsky
THE MAYFLOWER GROUP, LTD.
By: /s/ Marshall S. Sterman
--------------------------
Marshall S. Sterman, President
4
Exhibit 10.27(b)
OMEGA ORTHODONTICS, INC.
3621 Silver Spur Lane
Acton, CA 93510
May 12, 1997
Dr. C. Joel Glovsky
44 Grey Lane
Lynnfield, MA 01940
Marshall Sterman, President
The Mayflower Group, Ltd.
393 Commonwealth Avenue
Boston, MA 02115
Re: Amendment No. 1 to the Amended and Restated Consulting Agreement dated as
of September 4, 1996 among C. Joel Glovsky, The Mayflower Group, Ltd. and
Omega Orthodontics, Inc.
Gentlemen:
Reference is made to that certain Amended and Restated Consulting Agreement
dated as of September 4, 1996 (the "Agreement") among C. Joel Glovsky
("Glovsky"), The Mayflower Group, Ltd. ("Mayflower" and together with Glovsky,
the "Consultants") and Omega Orthodontics, Inc. ("Omega").
In consideration of the mutual premises and the mutual covenants contained
herein and in the Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. A new section 17 is added which shall read as follows:
17. CASH PAYMENTS. As additional consideration for the services
rendered by each of the Consultants, Omega shall make the following cash
payments in accordance with the following schedule to assist each of the
Consultants to meet his or its tax obligations with respect to the receipt of
the Glovsky Shares or the Mayflower Shares, as the case may be:
DATE AMOUNT DATE AMOUNT
---- ------ ---- ------
January 1, 1998 $67,500 June 1, 1999 $27,000
April 1, 1998 $67,500 September 1, 1999 $27,000
June 1, 1998 $67,500 January 1, 2000 $10,800
September 1, 1998 $67,500 April 1, 2000 $10,800
January 1, 1999 $27,000 June 1, 2000 $10,800
April 1, 1999 $27,000 September 1, 2000 $10,800
<PAGE>
C. Joel Glovsky
Marshall S. Sterman, President
May 12, 1997
Page 2
2. Section 5 of the Agreement is deleted in its entirety and the following
new Section 5 shall be inserted in lieu thereof:
5. TERM OF AGREEMENT. This Amended and Restated Consulting Agreement shall
be effective as of the date set forth above and shall expire upon receipt by
Glovsky and Mayflower of the last payment required to be made by Omega pursuant
to Section 17 of this Agreement.
3. Except as expressly amended or modified hereby, the Agreement shall and
does remain in full force and effect and is hereby ratified and confirmed in all
respects.
If you agree with the amendments set forth above, please date and sign the
enclosed copy of this Letter Agreement and return one executed copy to the
undersigned. By executing this Letter Agreement, the parties agree that this
Letter Agreement may be executed in one or more counterparts, and all such
counterparts shall constitute one and the same instrument.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
------------------------------
Robert J. Schulhof, President
ACCEPTED AND AGREED
AS OF THIS 12th DAY OF
MAY, 1997
/s/ C. Joel Glovsky
- --------------------------
C. Joel Glovsky
THE MAYFLOWER GROUP, LTD.
By: /s/ Marshall S. Sterman
-----------------------------
Marshall S. Sterman, President
Exhibit 10.28
-------------
LEONARD, MULHERIN GREENE, P.C.
Certified Public Accountants & Business Consultants
Sixty-Three Chatham Street
Boston, Massachusetts 02109
---------------------
Telephone: (617) 248-6500
Telecopier: (617) 248-6501
October 23, 1996
Mr. Robert Schulhof, President
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93520
Dear Bob:
We are pleased to confirm our understanding of the nature and limitations of the
services we are to provide for Omega Orthodontics, Inc.
Edward M. Mulherin, CPA, Esquire will act as controller and interim chief
financial officer for the corporation until January 31, 1996 or otherwise agreed
upon. The range of services we are to provide include:
o Review financial information for potential acquisition targets, convert to
accrual based GAAP financials, as required. Prepare workpapers and
supporting documentation for audit firm.
o Participate in drafting IPO prospectus, resolve SEC issues and act as
liaison between corporation and accounting firm.
o Participate in drafting of projections and forecasts for public offering.
o Review tax issues, prepare federal and state tax returns.
o Document and implement corporate accounting software, as needed.
o Assist with hiring of full-time CFO/controller.
We will not express an opinion on Omega Orthodontics, Inc.'s financial
statements or any elements, accounts or items thereof.
<PAGE>
We would discount our standard hourly rates as follows:
Standard Rate Discount Fee
Partner (EMM) $ 125 $ 100
Manager $ 80 $ 70
Staff $ 60 $ 50
We would be willing to make the same investment in Omega Orthodontics, Inc. as
the Company's recently issued "bridge" financing. Based on initial discussions I
estimate that the time and billing required to perform the above services by
myself and my staff will be at least $50,000. We would be willing to defer
payment of this amount until the Company's initial public offering. In exchange,
we would receive a 15% return on the investment and stock options for 10,000
shares of the Company's stock. Any out-of-pocket costs for travel, etc. would be
aid as incurred. In addition, any billing over $50,000 would be paid as
incurred.
We appreciate the opportunity to assist you and believe this letter accurately
summarizes the significant terms of our engagement. If you have any questions,
please let us know. If you agree with the terms of our engagement as described
in this letter, please sign the enclosed copy and return it to us. If the need
for additional services arises, our agreement with you will be revised. It is
customary for us to enumerate these revisions in an addendum to this letter.
Very truly yours,
/s/ Edward M. Mulherin
- ------------------------------------
Edward M. Mulherin, CPA, Esq.
Leonard, Mulherin & Greene, P.C.
EMM/bjt
RESPONSE:
This letter correctly sets forth the understanding of Omega Orthodontics, Inc.
By: /s/ Robert J. Schulhof
--------------------------
Robert J. Schulhof
Title: President
Date: 10/23/96
Exhibit 10.29
CONSULTING AGREEMENT
THIS AGREEMENT, dated as of May 1, 1997, by and between Omega
Orthodontics, Inc., a Delaware corporation (the "Company"), and C. Joel Glovsky,
residing in Lynnfield, Massachusetts (the "Consultant").
WHEREAS, the Company desires to retain Consultant for the period and
upon and subject to the terms herein provided; and
WHEREAS, the Consultant is willing to agree to be retained by the
Company upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements hereinafter set forth and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. RETENTION OF CONSULTANT. The Company hereby retains the Consultant
to provide services as a management consultant and advisor in connection with
the operation of the Company's business.
2. TERM OF AGREEMENT. The term of this Agreement shall be for a period
of three (3) years commencing on the closing of the initial public offering of
the Company's common stock (the "Effective Date") and expiring at midnight on
the day immediately preceding the third anniversary of the Effective Date,
unless terminated prior to that date as provided in Section 7 of this Agreement.
Commencing on the third anniversary of the Effective Date and on each
anniversary thereafter, the term of this Agreement shall be automatically
extended for an additional year, unless either party gives notice of termination
as provided in Subsection 7(c) of this Agreement.
3. CONSULTING DUTIES. During the term of this Agreement and any
extension, the Consultant shall render consulting and advisory services to the
Company, with particular responsibility as the director of the Company's program
to acquire orthodontic practices throughout the United States, including,
without limitation, the marketing of the Company's affiliation program to
orthodontic practices in the United States and the negotiation of the
documentation with the potential affiliates. Such services shall be rendered on
an "on-call" basis, and the Consultant shall be reasonably available at times
during normal business hours and shall use his best efforts to promote the
interests of the Company.
4. INDEPENDENT CONTRACTOR. The Consultant is retained by the Company
only for the purpose and to the extent herein set forth, and the Consultant's
relationship to the Company shall, during the period of the Consultant's
services hereunder, be that of an independent contractor. Accordingly, the
Consultant shall be responsible for the payment of all federal, state and local
income taxes, social security taxes, self-employment taxes, sales taxes,
unemployment insurance taxes and similar taxes attributable to the fees paid by
the Company to
<PAGE>
the Consultant pursuant to this Agreement. The Consultant shall not participate
in the Company's employee benefit plans and programs and his compensation shall
be governed exclusively by the terms of this Agreement. Neither party to this
Agreement and none of their respective agents, employees, representatives, or
independent contractors shall (i) be considered an agent, employee or
representative of the other party for any purpose whatsoever; (ii) have any
authority to make any agreement or commitment for the other party or to incur
liability or obligation in the other party's name or on its behalf; or (iii)
represent to third parties that any of them has any right so to bind the other
party hereto.
5. FRINGE BENEFITS. The Consultant shall not be entitled to, and shall
have no claim under this Agreement or otherwise against the Company for, any
so-called fringe benefits, including but not limited to: paid vacation; health
insurance; life insurance; long-term disability insurance; participation in a
profit sharing or pension plan; paid sick leave; or family leave.
6. COMPENSATION. In consideration of the consulting services to be
performed by the Consultant as set forth herein, the Company shall pay the
Consultant a one time fee of $2,500 for each orthodontic practice that
affiliates with the Company following the Effective Date, such fee to be payable
in the month in which such affiliation is completed. Beginning with the first
month after the Company has completed affiliations with an aggregate of fifteen
orthodontic practices, the Company shall pay the Consultant at the rate of
$5,000 per month for that month and each month thereafter during the first 12
months of this Agreement. Notwithstanding the foregoing, the maximum fee payable
to the Consultant hereunder during the first 12 months of this Agreement shall
be $60,000. At the end of the first 12 months of this Agreement, the Company
shall review the workload of the Consultant and shall propose a revised
compensation plan for the remainder of the term of this Agreement. If the
parties cannot agree on such revised compensation plan, the compensation payable
to the Consultant shall remain as stated in this Section 6.
6.1. Reimbursement of Expenses.The Company shall provide for the
payment or reimbursement of all reasonable and necessary expenses incurred by
the Consultant in connection with the performance of his duties under this
Agreement in accordance with the Company's expense reimbursement policy, as such
may change from time to time.
7. TERMINATION.
(a) The Company may terminate this Agreement immediately upon
the occurrence of any of the following: (i) the Consultant's death; (ii) the
Company determines that the Consultant has furnished deceptive or fraudulent
information to the Company; or (iii) the Consultant engages in criminal,
unprofessional, unethical or fraudulent conduct and the Consultant is found
guilty of such conduct by any entity or governmental agency of competent
jurisdiction.
2
<PAGE>
(b) Either party may terminate this Agreement upon breach by
the other of any material term in this Agreement, which breach has not been
cured to the reasonable satisfaction of the non-breaching party within thirty
(30) days after notice of such breach.
(c) Either party may terminate this Agreement at the end of
the initial term or any extension of this Agreement by giving the other party
ninety (90) days prior written notice of such termination.
(d) Upon termination of this Agreement, the Consultant shall
be entitled to receive such compensation, if any, accrued under the terms of
this Agreement, but unpaid, as of the date of said termination.
8. CONFIDENTIALITY. The Consultant shall not, either during the period
of his consultancy with the Company or thereafter, reveal or disclose to any
person outside the Company or use to his own benefit, any proprietary and
confidential marketing technique or cost method, or any affiliated orthodontist
or orthodontic entity list of the Company or any patient list thereof or any
proprietary and confidential mailing or supplier list, whether or not made,
developed and/or conceived by the Consultant or by others in the employ of the
Company. Upon the termination of the Consultant's consultancy in any manner or
for any reason, the Consultant shall promptly surrender to the Company all
copies of any of the foregoing, together with any other documents, materials,
data, information and equipment belonging to or relating to the Company's
business and in his possession, custody or control, and the Consultant shall not
thereafter retain or deliver to any other person, any of the foregoing or any
summary or memorandum thereof.
9. REPRESENTATIONS. The Consultant hereby represents and warrants that
this Agreement constitutes his valid and binding obligation enforceable in
accordance with its terms and that the execution, delivery and performance of
this Agreement does not violate any agreement, arrangement or restriction of any
kind to which the Consultant is a party or by which he is bound.
10. NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be sent by hand, certified mail, overnight air
courier service or telecopier (if within a reasonable time a permanent copy is
given by any of the other methods described above), in each case with all
applicable charges paid or otherwise provided for, addressed as follows or to
such other address as may hereafter be designated in writing by the respective
parties hereto:
If to the Consultant:
C. Joel Glovsky
44 Grey Lane
Lynnfield, MA 01940
Telephone: (617) 334-4712
Facsimile: (617) 334-4889
3
<PAGE>
If to the Company:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
Such notice, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement
concerning the arrangement between the parties and shall, as of the effective
date, supersede all other agreements or arrangements between the parties with
regard to the subject matter hereof.
12. BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The obligations of the Company under
this Agreement shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business or similar event relating to the
Company. This Agreement shall not be terminated by reason of any merger,
consolidation or reorganization of the Company, but shall be binding upon and
inure to the benefit of the surviving or resulting entity.
13. ASSIGNMENT. The Consultant may not assign any of his rights or
obligations hereunder without the prior written consent of the Company.
14. MODIFICATION. No waiver or modification of this Agreement or of any
covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and no evidence
of any waiver or modification shall be offered or received in evidence of any
proceeding, arbitration or litigation between the parties hereto arising out of
or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such wavier or modification is in writing, duly executed as
aforesaid.
15. WAIVER. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
16. SEVERABILITY. All agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid or
unenforceable by any court of competent jurisdiction, this Agreement shall be
interpreted as if such invalid agreements or warrants were not contained herein.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered shall be an original,
and all of which
4
<PAGE>
together shall constitute one instrument. In proving this Agreement, it shall
not be necessary to produce or account for more than one such counterpart signed
by the party against whom enforcement is sought.
18. GOVERNING LAW. It is the intention of the parties hereto that this
Agreement and the performance hereunder be construed in accordance with, under
and pursuant to the laws of the State of Delaware without regard to the
jurisdiction in which any action or special proceeding may be instituted.
19. ATTORNEYS' FEES. In the event that it becomes necessary for any
party hereto to employ an attorney to enforce any provision of this Agreement,
obtain injunctive relief or collect damages on account of a breach of this
Agreement by any other party hereto, the non-prevailing party shall pay to the
prevailing party reasonable attorneys' fees, and such expenses, court costs and
other disbursements as the prevailing party may have expended in such
proceedings, including appeals, upon demand, after settlement or upon the
issuance of a final, non-appealable judgment.
20. HEADINGS. The headings have been inserted for convenience only and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
-------------------------------
Robert J. Schulhof, President
/s/ C. Joel Glovsky
-------------------------------
C. Joel Glovsky
5
Exhibit 10.30
CONSULTING AGREEMENT
THIS AGREEMENT, dated as of May 1, 1997, by and between Omega Orthodontics,
Inc., a Delaware corporation (the "Company"), and Leonard, Mulherin & Greene,
P.C., a Massachusetts professional corporation (the "Consultant").
WHEREAS, the Company desires to retain Consultant for the period and upon
and subject to the terms herein provided; and
WHEREAS, the Consultant is willing to agree to be retained by the Company
upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. RETENTION OF CONSULTANT. The Company hereby retains the Consultant to
provide services as an accounting and financial consultant and advisor in
connection with the operation of the Company's business, such services to be
provided primarily through Edward M. Mulherin, a certified public accountant and
principal stockholder of the Consultant ("Mr. Mulherin").
2. TERM OF AGREEMENT. The term of this Agreement shall be for a period of
three (3) years commencing on May 1, 1997 and expiring at midnight on April 30,
2000, unless terminated prior to that date as provided in Section 7 of this
Agreement. Commencing on May 1, 2000 and on each May 1 thereafter, the term of
this Agreement shall be automatically extended for an additional year, unless
either party gives notice of termination as provided in Subsection 7(c) of this
Agreement.
3. CONSULTING DUTIES. During the term of this Agreement and any extension,
the Consultant shall render accounting and financial consulting services to the
Company and shall make Mr. Mulherin available at all time reasonably requested
by the Company to serve as the Company's Chief Financial Officer. The parties
understand and agree that Mr. Mulherin may, from time to time, utilize the
services of one or more other accountants and employees of the Consultant in
performing services hereunder.
4. INDEPENDENT CONTRACTOR. The Consultant is retained by the Company only
for the purpose and to the extent herein set forth, and the Consultant's
relationship to the Company shall, during the period of the Consultant's
services hereunder, be that of an independent contractor. Accordingly, the
Consultant shall be responsible for the payment of all federal, state and local
income taxes, social security taxes, self-employment taxes, sales taxes,
unemployment insurance taxes and similar taxes attributable to the fees paid by
the Company to the Consultant pursuant to this Agreement. The Consultant shall
not participate in the Company's employee benefit plans and programs and the
Consultant's compensation shall be governed exclusively by the terms of this
Agreement. Neither party to this Agreement and none
<PAGE>
of their respective agents, employees, representatives, or independent
contractors (other than Mr. Mulherin who shall be and be considered to be an
officer of the Company, but not an employee) shall (i) be considered an agent,
employee or representative of the other party for any purpose whatsoever; (ii)
have any authority to make any agreement or commitment for the other party or to
incur liability or obligation in the other party's name or on its behalf; or
(iii) represent to third parties that any of them has any right so to bind the
other party hereto.
5. FRINGE BENEFITS. The Consultant shall not be entitled to, and shall have
no claim under this Agreement or otherwise against the Company for, any
so-called fringe benefits, including but not limited to: paid vacation; health
insurance; life insurance; long-term disability insurance; participation in a
profit sharing or pension plan; paid sick leave; or family leave.
6. COMPENSATION. In consideration of the consulting services to be
performed by the Consultant as set forth herein, the Company shall pay the
Consultant a fee of $5,000 per month; provided, however, that beginning the
later of (a) November 1, 1997 or (b) the first month after the Company has
completed affiliations with an aggregate of fifteen orthodontic practices, the
Company shall pay the Consultant a fee of $10,000 per month in that month and
thereafter through the remainder of the term of this Agreement. All such fees
shall be payable monthly in arrears. In addition, the Company shall grant to the
Consultant, upon the execution of this Agreement, a non-qualified stock option
under the Company's Incentive Stock Plan to acquire 150,000 shares of the
Company's Common Stock, par value $.01 per share, at an exercise price equal to
the initial public offering price for the Company's Common Stock. Such option
shall vest in equal installments on each of the first three anniversaries of the
date of execution of this Agreement.
7. TERMINATION.
(a) The Company may terminate this Agreement immediately upon the
occurrence of any of the following: (i) the failure of the Company to complete,
on or before June 30, 1997, an initial public offering of its common stock with
aggregate gross proceeds of not less than $10,000,000 ; (ii) Mr. Mulherin's
death; (iii) the Company determines that the Consultant has furnished deceptive
or fraudulent information to the Company; or (iv) the Consultant engages in
criminal, unprofessional, unethical or fraudulent conduct and the Consultant is
found guilty of such conduct by any entity or governmental agency of competent
jurisdiction.
(b) Either party may terminate this Agreement upon breach by the other of
any material term in this Agreement, which breach has not been cured to the
reasonable satisfaction of the non-breaching party within thirty (30) days after
notice of such breach.
(c) Either party may terminate this Agreement at the end of the initial
term or any extension of this Agreement by giving the other party ninety (90)
days prior written notice of such termination.
2
<PAGE>
(d) Upon termination of this Agreement, the Consultant shall be entitled to
receive such compensation, if any, accrued under the terms of this Agreement,
but unpaid, as of the date of said termination.
8. INDEMNIFICATION. The Consultant shall be entitled to indemnification
from the Company hereunder in accordance with the terms and conditions set forth
on Exhibit A hereto, which is incorporated herein by this reference.
9. CONFIDENTIALITY. The Consultant shall not, either during the period of
his consultancy with the Company or thereafter, reveal or disclose to any person
outside the Company or use to his own benefit, any proprietary and confidential
marketing technique or cost method, or any affiliated orthodontist or
orthodontic entity list of the Company or any patient list thereof or any
proprietary and confidential mailing or supplier list, whether or not made,
developed and/or conceived by the Consultant or by others in the employ of the
Company. Upon the termination of the Consultant's consultancy in any manner or
for any reason, the Consultant shall promptly surrender to the Company all
copies of any of the foregoing, together with any other documents, materials,
data, information and equipment belonging to or relating to the Company's
business and in his possession, custody or control, and the Consultant shall not
thereafter retain or deliver to any other person, any of the foregoing or any
summary or memorandum thereof.
10. REPRESENTATIONS. The Consultant hereby represents and warrants that
this Agreement constitutes his valid and binding obligation enforceable in
accordance with its terms and that the execution, delivery and performance of
this Agreement does not violate any agreement, arrangement or restriction of any
kind to which the Consultant is a party or by which he is bound.
11. NOTICES. All notices, requests and demands to or upon the respective
parties hereto shall be sent by hand, certified mail, overnight air courier
service or telecopier (if within a reasonable time a permanent copy is given by
any of the other methods described above), in each case with all applicable
charges paid or otherwise provided for, addressed as follows or to such other
address as may hereafter be designated in writing by the respective parties
hereto:
If to the Consultant:
Leonard, Mulherin & Greene, P.C.
63 Chatham Street
Boston, MA 02109
Telephone: (617) 248-6500
Facsimile: (617) 248-6501
If to the Company:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Telephone: (805) 269-2841
Facsimile: (805) 269-2854
3
<PAGE>
Such notice, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
concerning the arrangement between the parties and shall, as of the effective
date, supersede all other agreements or arrangements between the parties with
regard to the subject matter hereof.
13. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The obligations of the Company under
this Agreement shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business or similar event relating to the
Company. This Agreement shall not be terminated by reason of any merger,
consolidation or reorganization of the Company, but shall be binding upon and
inure to the benefit of the surviving or resulting entity.
14. ASSIGNMENT. The Consultant may not assign any of his rights or
obligations hereunder without the prior written consent of the Company.
15. MODIFICATION. No waiver or modification of this Agreement or of any
covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and no evidence
of any waiver or modification shall be offered or received in evidence of any
proceeding, arbitration or litigation between the parties hereto arising out of
or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such wavier or modification is in writing, duly executed as
aforesaid.
16. WAIVER. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
17. SEVERABILITY. All agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid or
unenforceable by any court of competent jurisdiction, this Agreement shall be
interpreted as if such invalid agreements or warrants were not contained herein.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered shall be an original,
and all of which together shall constitute one instrument. In proving this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart signed by the party against whom enforcement is sought.
19. GOVERNING LAW. It is the intention of the parties hereto that this
Agreement and the performance hereunder be construed in accordance with, under
and pursuant
4
<PAGE>
to the laws of the State of Delaware without regard to the jurisdiction in which
any action or special proceeding may be instituted.
20. ATTORNEYS' FEES. In the event that it becomes necessary for any party
hereto to employ an attorney to enforce any provision of this Agreement, obtain
injunctive relief or collect damages on account of a breach of this Agreement by
any other party hereto, the non-prevailing party shall pay to the prevailing
party reasonable attorneys' fees, and such expenses, court costs and other
disbursements as the prevailing party may have expended in such proceedings,
including appeals, upon demand, after settlement or upon the issuance of a
final, non-appealable judgment.
21. HEADINGS. The headings have been inserted for convenience only and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
--------------------------
Robert J. Schulhof, President
LEONARD, MULHERIN & GREENE, P.C.
BY: /s/ Edward M. Mulherin
--------------------------
6
<PAGE>
EXHIBIT A
Section 1. Definitions. For purposes of this Exhibit A, the following terms
shall have the meanings indicated:
"Court" means the Court of Chancery of the State of Delaware, the court in
which the Proceeding in respect of which indemnification is sought by the
Consultant shall have been brought or is pending, or another court having
subject matter jurisdiction and personal jurisdiction over the parties.
"Disinterested" describes any individual, whether or not that individual is
a director, officer, employee or agent of the corporation who is not and was not
and is not threatened to be made a party to the Proceeding in respect of which
indemnification, advancement of expenses or other action, is sought by the
Consultant.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean the Consultant having acted in good faith and in a
manner the Consultant reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any Proceeding which is
criminal in nature, having had no reasonable cause to believe the Consultant's
conduct was unlawful.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and may include law firms or members
thereof that are regularly retained by the corporation but not by any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the corporation or the Consultant in an action to determine the
Consultant's rights under this Exhibit A.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternative dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one initiated by the Consultant, but including one initiated by the Consultant
for the purpose of enforcing the Consultant's rights under this Exhibit A to the
extent provided in Section 15 of this Exhibit A. "Proceeding" shall not include
any counterclaim brought by the Consultant other than one arising out of the
same transaction or occurrence that is the subject matter of the underlying
claim.
7
<PAGE>
Section 2. Right to Indemnification in General. The corporation shall
indemnify, and advance Expenses to the Consultant when the Consultant is, was or
is threatened to be made a party or is otherwise involved in any Proceeding, as
provided in this Exhibit A and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
hereafter from time to time permit.
The indemnification provisions in this Exhibit A shall be deemed to be a
contract between the corporation and the Consultant at any time while these
provisions as well as the relevant provisions of the Delaware General
Corporation Law are in effect, and any repeal or modification thereof shall not
affect any right or obligation then existing with respect to any state of facts
then or previously existing or any Proceeding previously or thereafter brought
or threatened based in whole or in part upon any such state of facts. Such a
contract right may not be modified retroactively without the consent of the
Consultant.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Corporation. The Consultant shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of providing consulting services to the
corporation, the Consultant is, or is threatened to be made, a party to or is
otherwise involved in any Proceeding, other than a Proceeding by or in the right
of the corporation. The Consultant shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement, actually and
reasonably incurred by or on behalf of the Consultant in connection with such
Proceeding or any claim, issue or matter therein, if the Consultant acted in
Good Faith.
Section 4. Proceedings by or in the Right of the Corporation. The
Consultant shall be entitled to the rights of indemnification provided in this
Section 4 if, by reason of providing consulting services to the corporation, the
Consultant is, or is threatened to be made, a party to or is otherwise involved
in any Proceeding brought by or in the right of the corporation to procure a
judgment in its favor. The Consultant shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement, actually and
reasonably incurred by such or on behalf of the Consultant in connection with
such Proceeding or any claim, issue or matter therein, if the Consultant acted
in Good Faith. Notwithstanding the foregoing, no such indemnification shall be
made in respect of any claim, issue or matter in such Proceeding as to which the
Consultant shall have been adjudged to be liable to the corporation if
applicable law prohibits such indemnification; provided, however, that, if
applicable law so permits, indemnification shall nevertheless be made by the
corporation in such event if and only to the extent that the Court which is
considering the matter shall so determine.
Section 5. Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Exhibit A, to the extent that the
Consultant is, by reason of providing consulting services to the corporation, a
party to or is otherwise involved in and is successful, on the merits or
otherwise, in any Proceeding, the Consultant shall be indemnified to the maximum
extent permitted by law, against all Expenses, judgments, penalties, fines, and
amounts paid in settlement, actually and reasonably incurred by or on behalf of
the Consultant in connection therewith. If the Consultant is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the corporation shall indemnify the Consultant to
8
<PAGE>
the maximum extent permitted by law, against all Expenses, judgments, penalties,
fines, and amounts paid in settlement, actually and reasonably incurred by or on
behalf of the Consultant in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 5 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Exhibit A, to the extent that the Consultant is, by
reason of providing consulting services to the corporation, a witness in any
Proceeding, the Consultant shall be indemnified against all Expenses actually
and reasonably incurred by or on behalf of the Consultant in connection
therewith.
Section 7. Advancement of Expenses. Notwithstanding any provision to the
contrary in this Exhibit A, the corporation shall advance all reasonable
Expenses which, by reason of the Consultant providing consulting services to the
corporation, were incurred by or on behalf of the Consultant in connection with
any Proceeding, within twenty (20) days after the receipt by the corporation of
a statement or statements from the Consultant requesting such advance or
advances, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by the
Consultant and shall include or be preceded or accompanied by an undertaking by
or on behalf of the Consultant to repay any Expenses if the Consultant shall be
adjudged to be not entitled to be indemnified against such Expenses. Any advance
and undertakings to repay made pursuant to this Section 7 shall be unsecured and
interest-free. Advancement of Expenses pursuant to this Section 7 shall not
require approval of the board of directors or the stockholders of the
corporation, or of any other person or body. The secretary of the corporation
shall promptly advise the Board in writing of the request for advancement of
Expenses, of the amount and other details of the advance and of the undertaking
to make repayment provided pursuant to this Section 7.
Section 8. Notification and Defense of Claim. Promptly after receipt by the
Consultant of notice of the commencement of any Proceeding, the Consultant
shall, if a claim is to be made against the corporation under this Exhibit A,
notify the corporation of the commencement of the Proceeding. The omission of
such notice will not relieve the corporation from any liability which it may
have to the Consultant otherwise than under this Exhibit A. With respect to any
such Proceedings of which the Consultant has provided notice to the corporation:
(a) The corporation will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below, the corporation (jointly with any
other indemnifying party similarly notified) will be entitled to assume the
defense with counsel reasonably satisfactory to the Consultant. After notice
from the corporation to the Consultant of its election to assume the defense of
a suit, the corporation will not be liable to the Consultant under this Exhibit
A for any legal or other expenses subsequently incurred by the Consultant in
connection with the defense of the Proceeding other than reasonable costs of
investigation or as otherwise provided below.
9
<PAGE>
The Consultant shall have the right to employ its own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the corporation of its assumption of the defense shall be at the expense of the
Consultant except as follows. The fees and expenses of counsel shall be at the
expense of the corporation if (i) the employment of counsel by the Consultant
has been authorized by the corporation, (ii) the Consultant shall have concluded
reasonably that there may be a conflict of interest between the corporation and
the Consultant in the conduct of the defense of such action and such conclusion
is confirmed in writing by the corporation's outside counsel regularly employed
by it in connection with corporate matters, or (iii) the corporation shall not
in fact have employed counsel to assume the defense of such Proceeding. The
corporation shall be entitled to participate in, but shall not be entitled to
assume the defense of, any Proceeding brought by or in the right of the
corporation or as to which the Consultant shall have made the conclusion
provided for in (ii) above and such conclusion shall have been so confirmed by
the corporation's said outside counsel.
(c) Notwithstanding any provision of this Exhibit A to the contrary, the
corporation shall not be liable to indemnify the Consultant under this Exhibit A
for any amounts paid in settlement of any Proceeding effected without its
written consent. The corporation shall not settle any Proceeding or claim in any
manner which would impose any penalty, limitation or disqualification of the
Consultant for any purpose without the Consultant's written consent. Neither the
corporation nor the Consultant will unreasonably withhold their consent to any
proposed settlement.
(d) If it is determined that the Consultant is entitled to indemnification
other than as afforded under subparagraph (b) above, payment to the Consultant
of the additional amounts for which the Consultant is to be indemnified shall be
made within ten (l0) days after such determination.
Section 9. Procedures.
(a) Method of Determination. A determination (as provided for by this
Exhibit A or if required by applicable law in the specific case) with respect to
the Consultant's entitlement to indemnification shall be made either (a) by the
board of directors by a majority vote of a quorum consisting of Disinterested
directors, or (b) in the event that a quorum of the board of directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the board of directors, a copy of which shall be
delivered to the Consultant seeking indemnification, or (c) by the vote of the
holders of a majority of the corporation's capital stock outstanding at the time
entitled to vote thereon.
(b) Initiating Request. The Consultant seeking indemnification under this
Exhibit A shall submit a Request for Indemnification, including such
documentation and information as is reasonably available to the Consultant and
is reasonably necessary to determine whether and to what extent the Consultant
is entitled to indemnification.
10
<PAGE>
(c) Presumptions. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that the Consultant is entitled to indemnification
under this Exhibit A.
(d) Burden of Proof. The person or entity opposing the Consultant's claim
for indemnification shall have the burden of proof to overcome the presumption
described by Section 9(c) above in connection with the making by any person,
persons or entity of any determination contrary to that presumption.
(e) Effect of Other Proceedings. The termination of any proceeding or of
any claim, issue or matter therein, by judgment, order, settlement of
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Exhibit A) of itself
adversely affect the right of the Consultant to indemnification or create a
presumption that the Consultant did not act in Good Faith.
Section 10. Action by the Corporation. Any action, payment, advance
determination other than a determination made pursuant to Section 9,
authorization, requirement, grant of indemnification or other action taken by
the corporation pursuant to this Exhibit A shall be effected exclusively through
any Disinterested person so authorized by the board of directors of the
corporation, including the president or any vice president of the corporation.
Section 11. Exclusivity. The rights to indemnification and to receive
advancement of Expenses as provided by this Exhibit A shall be and be deemed to
be the sole rights to which the Consultant shall be entitled for indemnification
and advancement of Expenses for providing consulting services to the
corporation. No amendment, alteration, rescission or replacement of this Exhibit
A or any provision hereof shall be effective as to the Consultant with respect
to any action taken or omitted by the Consultant in providing consulting
services to the corporation or with respect to any state of facts then or
previously existing or any Proceeding previously or thereafter brought or
threatened based in whole or to the extent based in part upon any such state of
facts existing prior to such amendment, alteration, rescission or replacement.
Section l2. Insurance. The corporation may maintain, at its expense, an
insurance policy or policies to protect itself and the Consultant against
liability arising out of this Exhibit A or otherwise, whether or not the
corporation would have the power to indemnify any such person against such
liability under the Delaware General Corporation Law.
Section l3. No Duplicative Payment. The corporation shall not be liable
under this Exhibit A to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that the Consultant has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
Section 14. Expenses of Adjudication. In the event that the Consultant
seeks a judicial adjudication, or an award in arbitration, to enforce the
Consultant's rights under, or to recover damages for breach of, this Exhibit A,
the Consultant shall be entitled to recover from the corporation, and shall be
indemnified by the corporation against, any and all expenses (of the types
described in the definition of Expenses in Section 1 actually and reasonably
incurred by the
11
<PAGE>
Consultant in seeking such adjudication or arbitration, but only if the
Consultant prevails therein. If it shall be determined in such adjudication or
arbitration that the Consultant is entitled to receive part but not all of the
indemnification of expenses sought, the expenses incurred by the Consultant in
connection with such adjudication or arbitration shall be appropriately
prorated.
Section 15. Severability. If any provision or provisions of this Exhibit A
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Exhibit A (including without limitation, each portion of any Section of
this Exhibit A containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Exhibit A
(including, without limitation, each portion of any Section of this Exhibit A
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid.
12
Exhibit 10.31
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION
The undersigned (the "Purchaser") hereby offers and agrees to purchase from
OMEGA Orthodontics, Inc., a Delaware corporation (the "Company"), the dollar
principal amount of 15% Senior Notes ("Notes") due September 30, 1997 of the
Company indicated on the Signature Page at the end of this Agreement. Notes
subscribed for shall be purchased for 100% of the principal amount in cash in
the form of a personal check of the undersigned made payable to "OMEGA
Orthodontics, Inc.", delivered to the Company along with completed and executed
Signature Pages for OMEGA Orthodontics, Inc., the Subscription Agreement and a
completed and signed Investor Questionnaire. The minimum investment in the
Company is Fifty Thousand Dollars ($50,000.00).
2. ACKNOWLEDGEMENT
The Purchaser hereby acknowledges receipt of a copy of the Confidential
Private Placement Memorandum dated as of September 4, 1996 (the "Memorandum")
concerning the Company and offering of the Notes. Unless otherwise stated, every
capitalized term used herein will have the meaning for purposes hereof assigned
to such term in the Memorandum or the Notes.
3. ACCEPTANCE
The Purchaser understands that this Agreement represents one of a limited
number of subscriptions for the Notes of the Company being presented to
individuals or entities that comply with the requirements of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933 (the
"Securities Act"), by the Company. The Purchaser further understands and agrees
that this Agreement may be accepted or rejected by the Company in whole or in
part, in the sole and absolute discretion of the Company, and if accepted, the
Notes purchased pursuant hereto and the "Shares" (as defined below) will be
issued only in the name of the Purchaser. The Purchaser hereby acknowledges and
agrees that this Agreement and any documents submitted herewith shall survive
(i) changes in the Memorandum which are not material; (ii) death or disability
of the Purchaser; and (iii) the acceptance of this Agreement by the Company. The
Purchaser acknowledges that the Company is relying upon the representations and
warranties of the Purchaser set forth herein and in the accompanying Investor
Questionnaire and agrees to notify the Company immediately upon the occurrence
of any circumstance or event which could affect the accuracy or completeness of
such representations and warranties.
4. REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is relying solely upon the Memorandum, the Appendices
thereto, and independent investigations made by him or his representatives in
making his decision to purchase the Notes described herein. The Purchaser has
not been furnished any sales literature or offering other than the Memorandum
and the information referred to therein.
(b) The Purchaser understands that the Notes and Shares have not been
registered under the Securities Act or any state securities acts, in reliance on
exemptions for private offerings under the Securities Act and such state acts.
<PAGE>
(c) The Notes for which the Purchaser hereby subscribes and the Shares to
be issued to the Purchaser are being acquired solely for his own account, for
investment, and are not being purchased with a view to or for the resale,
distribution, subdivision or fractionalization thereof; he has no present plans
to enter into any such contract, undertaking, agreement or arrangement. In order
to induce the Company to issue and sell the Notes subscribed for hereby to the
Purchaser, it is agreed that the Company will have no obligation to recognize
the ownership, beneficial or otherwise, of such Notes and Shares by anyone but
the Purchaser.
(d) The Purchaser has received, completed and returned to the Company the
Investor Questionnaire relating to his general ability to bear the risks of an
investment in the Company and his suitability as an investor in a private
offering, and the Purchaser hereby affirms the correctness of his answers in
such Questionnaire.
(e) The Purchaser acknowledges and is aware that the Company has minimal
assets and operating history and that the Notes are speculative investments.
(f) The Purchaser acknowledges and is aware that there are substantial
restrictions on the transferability of the Notes and Shares; the Notes and
Shares will not be, and investors in the Company have no rights (other than to
the limited extent set forth below) to require that the Notes and Shares be,
registered under the Securities Act; there will be no public market for the
Notes and Shares; the Purchaser will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act with respect to the resale of the Notes and will be able to
avail himself of the provisions of such Rule 144 with respect to the resale of
the Shares only under the circumstances set forth thereunder; and accordingly,
that he may have to hold the Notes and Shares indefinitely and that it may not
be possible for him to liquidate his investment in the Company.
(g) The Purchaser (i) has adequate means of providing for his current needs
and possible personal contingencies, and he has no need for liquidity of his
investment in the Company; (ii) has a net worth sufficient to bear the risk of
losing his entire investment; (iii) can bear the economic risk of losing his
entire investment herein; and (iv) does not have an overall commitment to
non-readily marketable investments which is disproportionate to his net worth
and the investment subscribed for herein will not cause such overall commitment
to become excessive.
(h) If the Purchaser is an individual, he warrants that he is over
twenty-one (21) years of age; and if the Purchaser is a corporation, trust or
partnership the Purchaser warrants that it is authorized and otherwise duly
qualified to hold investments in the Company.
<PAGE>
5. INDEMNIFICATION
The Purchaser hereby indemnifies the Company and the Members of the Board
of Directors and the officers of the Company and all of their affiliates, agents
and controlling persons, and each of them, and agrees to hold them, and each of
them, harmless from and against any and all loss, damage, claim, liability or
expense (including reasonable attorneys' fees and expenses and costs of
investigation), which they or any of them may sustain or incur by reason of, or
in connection with any misrepresentation or breach of any warranty, agreement or
covenant made or undertaken in this Agreement, any Investor Questionnaire or
otherwise in connection with the sale or distribution by the Purchaser of the
Notes and Shares purchased by, or otherwise issued to, the Purchaser pursuant
hereto whether or not in violation of the Securities Act or other applicable
Federal or state law, provided, however, that such party or parties who may be
seeking indemnification hereunder were acting within the reasonable scope of
their authority and did not engage in gross negligence, wilful misconduct or bad
faith. The representations and warranties contained herein shall be binding upon
the Purchaser's heirs, executors, administrators, trustees, successors, and
assigns.
6. SHARES TO BE ISSUED PURSUANT TO NOTES
To induce the Purchaser to subscribe for Notes, the Company has agreed to
issue, for no additional consideration, the number of shares (the "Shares") of
Common Stock of the Company set forth on the face of the Note to be issued to
the Purchaser hereunder. Such Shares shall be subject to the terms and
conditions set forth in this Section 6.
A. Definitions
As used in this Section, the following terms have the respective meanings
set forth below:
"Business Day" shall mean any day that is not a Saturday, Sunday or a
federal holiday.
"Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the authorized Common Stock, par value $0.01 per
share, of the Company as constituted on the date hereof, and any capital stock
into which such Common Stock may hereafter be changed, and shall also include
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof.
"Fair Market Price" of a share of Common Stock means the closing price on
the day in question, or the immediately preceding Business Day if the day in
question is not a business day on the applicable national securities exchange
Nasdaq Stock Market system on which the Common Stock is included or listed or
if, on any day in question, the Common Stock shall not be listed on any national
securities exchange or quoted on the Nasdaq Stock Market, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to herein are available for the period
required hereunder, the Fair Market Price shall be determined in good faith by
the Board of Directors of the
<PAGE>
Company, or if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors.
"Holder" shall mean the Purchaser, and any permitted transferees thereof of
all or part of the Shares.
"Initial Public Offering" shall mean the first firm commitment underwritten
public offering of Common Stock (and other securities exercisable for the
purchase of Common Stock) by the Company pursuant to an effective Registration
Statement.
"Other Shares" shall have the meaning ascribed to in Section 6(c)(1)(b)
hereof.
"Outstanding" when used with reference to Common Stock shall mean, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company, and shall include shares of Common Stock then issuable pursuant
to any other warrants, options or other purchase rights, however denominated.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock held by the Company in its treasury.
"Registrable Shares" shall have the meaning ascribed to it in Section
6(c)(1) hereof.
"Registration Expenses" shall mean expenses relating to compliance by the
Company with its obligations under Section 6(c)(4) hereof, including all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state blue sky fees and expenses, and
the expense of any special audits and other expert reports incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of personal counsel selected by the
Holder.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successor forms, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another entity), including
the prospectus, amendments and supplements to such registration statement or
prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated or deemed to be incorporated by reference in such
registration statement.
"Restricted Shares" shall mean, at any time, the Holder's Shares, and any
securities received in respect thereof, which are at such time held by the
Holder and which theretofore have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
complementary rule thereto (including without limitation Rule 144A).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning ascribed to it above in this Section 6.
B. Sale or Transfer of Shares; Legend
(a) The Shares and the Registerable Shares and shares issued in respect of
the Shares or the Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Each certificate representing the Shares and the Registrable Shares,
and shares issued in respect of the Shares and the Registrable Shares, shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred or pledged unless and until such shares are
registered under such Act or an opinion of counsel reasonably satisfactory
to the Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
C. Registration Rights
1. Incidental Registration Rights. (a) If the Company at any time proposes
for any reason to register any of its securities under the Act (other than in
connection with its Initial Public Offering or pursuant to a registration
statement on Forms S-4, S-8 or similar or successor or another form which is not
available for registering Registrable Securities for sale to the public), it
shall each such time promptly give written notice to all Holders of Registrable
Securities of its intention so to do, and, upon the written request, given
within 10 days after receipt of any such notice, of such Holder to register any
Registrable Securities, which request shall specify the number of Registrable
Securities intended to be sold or disposed of by such Holders and shall state
the intended method of disposition of such Registrable Securities by such
Holders, the Company shall use its best efforts to cause all such Registrable
Securities to be registered under the Act as required to permit the sale or
other disposition (in accordance with the intended methods thereof, as
aforesaid) by such Holders. Notwithstanding the foregoing, the Company shall
have the right to withdraw such registration statement, if so required by
prudent business judgment, provided it shall reimburse the persons who indicated
their intention to include Registrable Securities therein for the out-of-pocket
expenses reasonably incurred by such persons in connection therewith.
"Registrable Securities", for purposes of this Section 6(c), means (i) the
Shares and (ii) any shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, any of such Shares.
<PAGE>
(b) In the event that the proposed registration by the Company is, in whole
or in part, an underwritten public offering of securities of the Company (other
than the Initial Public Offering as to which the Holder shall have no
registration rights under this Section 6(c)), any request pursuant to this
Section 6 to register may specify that the Registrable Securities are to be
included in the underwriting (i) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Registrable Securities are
being sold through underwriters under such registration; provided, however, that
if the managing underwriter determines and advises in writing that the inclusion
of all Registrable Securities proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Registrable Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then the number of Registrable Securities and Other Shares shall be
reduced pro rata among the holders of Registrable Securities and Other Shares,
as necessary.
2. Demand Registration. At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Holder holding in the aggregate at least 25% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Holders. Such Holders shall have the right by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Holders may request in such notice of Election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3, or such successor form, of all Registrable Shares
which the Company has been requested to register.
3. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 6(c) to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for at least nine
months and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement;
(c) furnish to each seller such number of copies of a summary prospectus
or other prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the public sale or other disposition
of such Registrable Securities;
(d) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as each
<PAGE>
such seller shall reasonably request (provided, however, that the Company shall
not be required to consent to general service of process for all purposes or
qualify to do business in any jurisdiction where it is not then qualified) and
do any and all other acts or things which may be reasonably necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities; and
(e) notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto covered by
such registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (b) of this ss.8.3, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an 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 in the light of the circumstances then existing.
4. Registration Expenses. All Registration Expenses incurred in complying
with this Section 6(c) shall be paid for by the Company.
5. Indemnification. In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Section 6(c) or other
registration or qualification thereof pursuant to Section 6(c)(3)(d) hereof, the
Company shall enter into an indemnity agreement with the sellers of Registrable
Securities in customary form relating thereto.
6. Assignment. The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may be assigned by a Holder to any
transferee or assignee of Registrable Securities upon the transfer or assignment
of all Registrable Securities held by such Holder or a minimum of 20% of shares
of such Registrable Securities; provided that the Company is notified in writing
of such transfer, the proposed transferee or assignee agrees to be bound by the
provisions of this Subscription Agreement.
7. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior understanding and agreements between them respecting
the subject matter of this Agreement.
8. GOVERNING LAW
This Agreement shall be governed, construed, and interpreted in all
respects, in accordance with the internal laws of the State of California
applicable to contracts made and to be performed wholly therein, except to the
extent that by its terms the General Corporation Law of the State of Delaware
shall, by reason of the status of the Company as a Delaware business
corporation, control, and the Purchaser hereby submits to jurisdiction and venue
of the courts located in the State of California.
<PAGE>
9. NOTICES
All notices, consents, requests, demands, offers, reports and other
communications required or permitted shall be deemed to be given when personally
delivered to the party entitled thereto, or when sent by United States mail,
certified or registered, in a sealed envelope, with postage prepaid, or by
receipted, commercial overnight courier addressed if to the Purchaser at the
respective location set below his name, and if to the Company to OMEGA
Orthodontics, Inc., 3621 Silver Spur Lane, Acton, California 93510, Attention:
Robert J. Schulhof, President.
IN WITNESS WHEREOF, the Purchaser has executed or has caused to be executed
this Subscription Agreement by execution of the following signature page as of
the date set forth therein.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR INDIVIDUAL
AND JOINT TENANT INVESTORS
Executed this 28th day of April, 1997
Dollar Amount of Notes Subscribed for: $25,000 (in Multiples of $5,000/minimum
investment: $50,000)
Printed Name of Subscriber: David T. Grove
Signature of Subscriber: /s/ David T. Grove
-------------------
Address of Subscriber
Number and Street: 581 12th Street
City-State-Zip Code: Elko, NV 89801
Printed Name of Joint Tenant, if applicable*:
Signature of Joint Tenant, if applicable Social Security No.
- ----------
* All joint tenants, including married couples, must execute this signature
page and check the following as appropriate indicating nature of tenancy: (a)
_____ Tenants in common; (b) _____ Joint tenants with right of survivorship; (c)
_____ Community property.
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR CORPORATE INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: ______ (in Multiples of $5,000/minimum
investment: $50,000)
Name of corporation (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR LIMITED LIABILITY COMPANY INVESTORS
Executed this ___ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of limited liability company (please print or type)
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Signature of authorized officer
Title:
Taxpayer Identification No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR TRUST INVESTORS
Executed this ____ day of _________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of trust (please print or type):
Name of trustee (please print or type):
ADDRESS:
Number and Street:
City-State-Zip Code:
BY:
-------------------
Trustee's signature
BY:
Additional trustee's signature (if required by Trust
Agreement)
Taxpayer Identification No. or
Social Security No.:
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PARTNERSHIP INVESTORS
Executed this ___ day of __________, 1996
Dollar Amount of Notes Subscribed for: _________ (in Multiples of $5,000/minimum
investment: $50,000)
Name of partnership (please print or type)
Name of general partner
ADDRESS:
Number and Street
City-State-Zip Code
BY:
Authorized signature of general partner
Print name of signer and title of signer's office
(or other capacity, as applicable)
Taxpayer Identification No:
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Approved and accepted as of the 28th day of April, 1997
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
-----------------------------
Robert J. Schulhof, President
Exhibit 11
Omega Orthodontics, Inc.
Statement RE Computation of Pro Forma Net Income per Share
1996
-------
Common shares issued upon incorporation 1,050,000
Common shares and common share equivalents
issued within 12 months of initial public
offering filing at less than initial public
offering price per share 635,000
Common shares assumed issued in connection with
Affiliate acquisitions 315,655
Common shares assumed issued in connection with
repayment of $875,000 of loans payable 145,833
----------
Shares used to compute pro forma net income per
share 2,146,488
==========
Pro forma net income to common stockholders $ 16,569
==========
Pro forma net income per share $0.01
==========
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", and to the
use of our reports dated February 28, 1997, with respect to the financial
statements of Michael G. Churosh, D.D.S., M.S., Ltd. and Theodore G. Saydyk,
Jr., D.D.S., M.S., P.C. included in the Registration Statement (Form SB-2) and
related Prospectus of Omega Orthodontics, Inc., dated May 15, 1997, for the
registration of 4,500,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 13, 1997
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", and to the
use of our reports dated February 10, 1997, with respect to the financial
statements of David T. Grove, D.M.D. and Robert R. Schmisseur, D.D.S., M.S.,
P.C., included in the Registration Statement (Form SB-2) and related Prospectus
of Omega Orthodontics, Inc., dated May 15, 1997, for the registration of
4,500,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 13, 1997
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", and to the
use of our report dated February 25, 1997, with respect to the financial
statements of Jeff S. Zapalac, D.D.S., M.S., Inc., included in the Registration
Statement (Form SB-2) and related Prospectus of Omega Orthodontics, Inc., dated
May 15, 1997, for the registration of 4,500,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 13, 1997
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", and to the
use of our reports dated March 7, 1997, with respect to the financial statements
of Clark E. Schneekluth, D.D.S., M.D., Inc., and Dr. Scott E. Feldman D.D.S.,
M.S., included in the Registration Statement (Form SB-2) and related Prospectus
of Omega Orthodontics, Inc., dated May 15, 1997, for the registration of
4,500,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 13, 1997
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", and to the
use of our report dated March 7, 1997, except for Note 8, as to which the date
is May 12, 1997, included in the Registration Statement (Form SB-2) and
related Prospectus of Omega Orthodontics, Inc., dated May 15, 1997, for the
registration of 4,500,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> AUG-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 321,057
<SECURITIES> 0
<RECEIVABLES> 14,600
<ALLOWANCES> (5,700)
<INVENTORY> 0
<CURRENT-ASSETS> 343,353
<PP&E> 11,212
<DEPRECIATION> (1,116)
<TOTAL-ASSETS> 490,923
<CURRENT-LIABILITIES> 711,385
<BONDS> 0
0
0
<COMMON> 16,150
<OTHER-SE> (236,612)
<TOTAL-LIABILITY-AND-EQUITY> 490,923
<SALES> 43,078
<TOTAL-REVENUES> 43,078
<CGS> 0
<TOTAL-COSTS> 248,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,172)
<INCOME-PRETAX> (232,112)
<INCOME-TAX> 0
<INCOME-CONTINUING> (232,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232,112)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
